Question

Exercise 3-4 On January 1, 2013, Peach Company issued 1,390 of its $20 par value common shares with a fair value of $58 per share in exchange for the 1,870 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,867, paid in cash. Just prior to the acquisition, the balance sheets of the two companies were as follows: Peach Company Swartz Company Cash $70,580 $13,760 Accounts receivable (net) 95,150 20,050 Inventory 58,210 22,920 Plant and equipment (net) 94,740 40,040 Land 26,430 19,820    Total assets $345,110 $116,590 Accounts payable $67,610 $16,600 Notes payable 77,430 21,390 Common stock, $20 par value 97,200 37,400 Other contributed capital 65,330 22,620 Retained earnings 37,540 18,580    Total equities $345,110 $116,590 Any difference between the book value of equity and the value implied by the purchase price relates to goodwill.

(a) Prepare the journal entries on Peach Company’s books to record the exchange of stock. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (To record exchange of stock) (To record registration costs)

Answer 1

Answer

Part A.	In the books of Peach company -	DR.	CR.
1.	Investment in Swartz company (1390 * 58)	80620	-
	Common stock (1390*20)	-	27800
	Other contributing capital (1390*38)	-	52820
2.	Other contributed capital. (Registration costs)	1867	-
	Cash	-	1867

If A Company issues stock in the acquisition, the investment is recorded at the fair value of the stock issued giving effect to any costs of registering the stock issue. The Registration costs would be recorded in a separate entry (as an expense)