Question

The following book and fair values were available for Westmont Company as of March 1.

	Book Value			Fair Value
Inventory	$	281,500		$	250,000
Land		805,500			1,112,250
Buildings		2,070,000			2,416,500
Customer relationships		0			870,000
Accounts payable		(82,500	)		(82,500	)
Common stock		(2,000,000	)
Additional paid-in capital		(500,000	)
Retained earnings 1/1		(421,500	)
Revenues		(446,000	)
Expenses		293,000

Arturo Company pays $3,960,000 cash and issues 29,500 shares of its $2 par value common stock (fair value of $50 per share) for all of Westmont’s common stock in a merger, after which Westmont will cease to exist as a separate entity. Stock issue costs amount to $29,400 and Arturo pays $50,000 for legal fees to complete the transaction.

Prepare Arturo’s journal entry to record its acquisition of Westmont.

Answer 1

Account Titles and Explanation	Debit	Credit
Inventory	250000
Land	1112250
Buildings	2416500
Customer Relationships	870000
Goodwill	868750
Accounts payable		82500
Common Stock		59000	=29500*2
Additional Paid-In Capital		1416000	=29500*(50-2)
Cash		3960000
Account Titles and Explanation	Debit	Credit
Professional Services Expense	50000
Cash		50000
To record legal fees related to the combination.
Account Titles and Explanation	Debit	Credit
Additional Paid-In Capital	29400
Cash		29400
To record payment of stock issuance costs.