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 180,700 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:

Immediately prior to the combination, Pintime’s common stock was selling for $14 per share. Pintime incurred direct costs of $142,000 in arranging the business combination and $48,000 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.)

Answer 1

a. Journal entries on the books of Pin time Industries to record the combination:

	Merger Expense	142,000
	Cash		142,000
	Deferred Stock Issue Costs	48,000
	Cash		48,000
	Cash	28,000
	Accounts Receivable	236,900
	Inventory	380,000
	Long-Term Investments	174,000
	Land	85,000
	Rolling Stock	47,000
	Plant and Equipment	2,485,000
	Patents	491,000
	Special Licenses	98,700
	Discount on Equipment Trust Notes ($108,000 – $103,000)	5,000
	Discount on Debentures ($1,030,000 – $980,000)	50,000
	Goodwill	246,600
	Current Payables		137,400
	Mortgages Payable		502,000
	Premium on Mortgages Payable ($522,000 – $502,000)		20,000
	Equipment Trust Notes		108,000
	Debentures Payable		1,030,000
	Common Stock (180700 * $2)		361,400
	Additional Paid-In Capital - Common (180700 * $12) – $48000		2,120,400
	Deferred Stock Issue Costs		48,000

Computation of goodwill

	Value of stock issued ($14 x 180,700)		$2,529,800
	Fair value of assets acquired	$4,025,600
	Fair value of liabilities assumed	(1,742,400)
	Fair value of net identifiable assets		(2,283,200)
	Goodwill		$ 246,600