On March 10, 2018, Alternative Energy Systems, Inc. spun off its tidal and wave

Question

On March 10, 2018, Alternative Energy Systems, Inc. spun off its tidal and wave energy systems line of business in order to focus on its major revenue-generating businesses, solar power. The spin-off was completed by the spun-off company, Wave Farms, Inc, making a pro rata distribution of 2,000,000 shares of its $0.01 par-value common stock to all Alternative Energy Systems shareholders. The following assets and liabilities were spun off by Alternative Energy Systems: Cash $2,500,000; Land $75,000; Building $4,000,000; Accumulated Depreciation- Building $200,000; Equipment $27,000,000; Accumulated Depreciation- Equipment $3,000,000; Current Liabilities $500,000; and Notes Payable $15,000,000 2. Required: (1) Prepare the journal entry that Alternative Energy Systems would make to record the spin-off. (2) Prepare the journal entry that Wave Farms would make to complete the spin-off.

Explanation / Answer

In the Books of Alternate Energy systems Date Accounts title & Explanation Debit Credit Shareholder's Account 14875000 Accumulated depreciation-building 200000 Accumulated depreciation-Equipment 3000000 Current Liabilities 500000 Notes Payable 15000000 Cash 2500000 Land 75000 Building 4000000 Equipment 27000000 Capital Reserve/loss on spin off 14875000 Shareholder's account 14875000 In the Books of Wave farms, Inc Date Accounts title & Explanation Debit Credit Cash 2500000 Land 75000 Building 4000000 Equipment 27000000 Accumulated depreciation-building 200000 Accumulated depreciation-Equipment 3000000 Current Liabilities 500000 Notes Payable 15000000 Common stock at par 20000 Capital Reserve/Profit on spin off 14855000

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