Recording a Business Combination
The following financial statement information was prepared for Blue Corporation and Sparse Company at December 31, 20X2:
Balance Sheets December 31, 20X2 | ||||
| Blue Corporation | Sparse Company | ||
Cash |
| $ 140,000 |
| $ 70,000 |
Accounts Receivable |
| 170,000 |
| 110,000 |
Inventory |
| 250,000 |
| 180,000 |
Land |
| 80,000 |
| 100,000 |
Buildings and Equipment | $ 680,000 |
| $ 450,000 |
|
Less: Accumulated Depreciation | (320,000) | 360,000 | (230,000) | 220,000 |
Goodwill |
| 70,000 |
| 20,000 |
Total Assets |
| $1,070,000 |
| $700,000 |
Accounts Payable |
| $ 70,000 |
| $195,000 |
Bonds Payable |
| 320,000 |
| 100,000 |
Bond Premium |
|
|
| 10,000 |
Common Stock |
| 120,000 |
| 150,000 |
Additional Paid-In Capital |
| 170,000 |
| 60,000 |
Retained Earnings |
| 390,000 |
| 185,000 |
Total Liabilities and Equities |
| $1,070,000 |
| $700,000 |
Blue and Sparse agreed to combine as of January 1, 20X3. To effect the merger, Blue paid finder’s fees of $30,000 and legal fees of $24,000. Blue also paid $15,000 of audit fees related to the issuance of stock, stock registration fees of $8,000, and stock listing application fees of $6,000.At January 1, 20X3, book values of Sparse Company’s assets and liabilities approximated market value except for inventory with a market value of $200,000, buildings and equipment with a market value of $350,000, and bonds payable with a market value of $105,000. All assets and liabilities were immediately recorded on Blue’s books.
Required
Give all journal entries that Blue recorded assuming Blue issued 40,000 shares of $8 par value common stock to acquire all of Sparse’s assets and liabilities in a business combination. Blue common stock was trading at $14 per share on January 1, 20X3.
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