Question

Pintime Industries Inc. entered into a business combination agreement with Sydrolized Chemical Corporation (SCC) to ensure an uninterrupted supply of key raw materials and to realize certain economies from combining the operating processes and the marketing efforts of the two companies. Under the terms of the agreement, Pintime issued 181,100 shares of its $2 par common stock in exchange for all of SCC’s assets and liabilities. The Pintime shares then were distributed to SCC’s shareholders, and SCC was liquidated.

Immediately prior to the combination, SCC’s balance sheet appeared as follows, with fair values also indicated:

	Book Values				Fair Values
Assets
Cash	$	24,000			$	24,000
Accounts Receivable		254,000				248,700
Less: Allowance for Bad Debts		(5,300	)
Inventory		362,000				376,000
Long-Term Investments		143,000				168,000
Land		39,000				85,000
Rolling Stock		127,000				48,000
Plant & Equipment		2,414,000				2,481,000
Less: Accumulated Depreciation		(598,000	)
Patents		120,000				499,000
Special Licenses		94,300				99,000
Total Assets	$	2,974,000			$	4,028,700
Liabilities
Current Payables	$	139,000			$	139,000
Mortgages Payable		500,000				520,000
Equipment Trust Notes		107,000				102,000
Debentures Payable		1,080,000				1,030,000
Less: Discount on Debentures		(57,000	)
Total Liabilities	$	1,769,000			$	1,791,000
Stockholders’ Equity
Common Stock ($6 par)		591,000
Additional Paid-In Capital from Common Stock		500,000
Additional Paid-In Capital from Retirement of Preferred Stock		19,000
Retained Earnings		109,000
Less: Treasury Stock (1,400 shares)		(14,000	)
Total Liabilities & Equity	$	2,974,000

Immediately prior to the combination, Pintime’s common stock was selling for $14 per share. Pintime incurred direct costs of $146,000 in arranging the business combination and $42,000 of costs associated with registering and issuing the common stock used in the combination.

Required:
a. Prepare all journal entries that Pintime should have entered on its books to record the business combination. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the payment of legal fees.
• Record the costs of issuing stock.
• Record the purchase of SCC.

	Event General Journal Debit Credit 1

b. Prepare all journal entries that should have been entered on SCC’s books to record the combination and the distribution of the stock received. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the sale of assets and liabilities.
• Record the retirement of Treasury Stock.
• Record the retirement of SCC stock and distribution of Pintime Industries stock.

	Event General Journal Debit Credit 1

Answer 1

a) In the books of Pintime

Legal Fees A/c - Dr $ 1,46,000

To Bank A/C $ 1, 46, 000

(Being legal fees on business acquisition recorded)

Share Issue Expense A/c - Dr $ 42, 000

To Bank A/c $ 42, 000

(Being cost of issuing stock on business acquisition recorded)

Cash A/c - Dr $ 24, 000

Accounts Receivable A/c - Dr $ 2, 48, 700

Inventory A/c - Dr $ 3, 76, 000

Long - term Investments A/c - Dr $ 1,68,000

Land A/c - Dr $ 85, 000

Rolling stock A/c - Dr $ 48, 000

Plant & Equipment A/c - Dr $ 24, 81, 000

Patent A/c - Dr $ 4, 99, 000

Special Licenses A/c - Dr $ 99, 000

Goodwill A/c - Dr $297700

To, Current Payables A/c $ 1, 39, 000

To, Mortage Payables A/c $ 5, 20, 000

To, Equipments Trust Note A/c $ 1, 02, 000

To, Debentures Payables $ 10, 30, 000

To Share Capital A/c $ 3, 62, 200

To Securities Premium A/c $ 21, 73, 200

(Being assets and liability of SCC acquired and payment made by way of issuing stock at premium of $ 12 per stock)

b) In the books of SCC

Current Payables A/c $ 1, 39, 000

Mortage Payables A/c $ 5, 00, 000

Equipments Trust Note A/c $ 1, 07, 000

Debentures Payables $ 10, 80, 000

Pintime A/c - Dr $ 25, 35, 400

To, Cash A/c - $ 24, 000

To, Accounts Receivable A/c - $ 2, 48, 700

   To, Inventory A/c - $ 3, 62, 000

To, Long - term Investments A/c $ 1,43,000

To, Land A/c - $ 39, 000

To, Rolling stock A/c - $ 1, 27, 000

To, Plant & Equipment A/c - $ 18, 16, 000

To, Patent A/c - $ 1, 20, 000

To, Special Licenses A/c - $ 94, 300

To, Profit on sale of business $ 13, 87, 400

(Being business sold)