Problem

Recording a Business CombinationThe following financial statement information was prepared...

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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