A nursing home has recently acquired a home health firm for $850,000 in cash. Th

Question

A nursing home has recently acquired a home health firm for $850,000 in cash. The balance sheet of the home health firm looked as follows prior to the acquisition: Current Assets $ 200,000 Net Fixed Assets $ 100,000 Total $ 300,000 Current liabilities $ 100,000 Shareholders' equity $ 200,000 Total $ 300,000 Assume that the fair market value of the net fixed assets is $300,000 and the fair market value of the current assets is $200,000. Describe how this acquisition might reflect on the balance sheet of the nursing home.

Explanation / Answer

this will reflect in nursing health balance sheet as follows:

In asset side create an asset of 850000.

reduce from cash 850000 thus balancing total asset to be equal to total asset...

Journal entry

home health firm debit 850000

cash 850000

if cash is not sufficient to pay then create an liability of 850000

as in accounting every transaction has two fold effect if there is increase or decrease in asset then corresponding effect must be there in liability.....thus total asset will remain equal to total liability...as asset increases by 850000 correspondingly cash also decreases by 850000.

so,total asset= total liability=300000

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