Journal Entries
On January 1, 20X3, PURE Products Corporation issued 12,000 shares of its $10 par value stock to acquire the net assets of Light Steel Company. Underlying book value and fair value information for the balance sheet items of Light Steel at the time of acquisition follow:
Balance Sheet Item | Book Value | Fair Value |
Cash | $ 60,000 | $ 60,000 |
Accounts Receivable | 100,000 | 100,000 |
Inventory (LIFO basis) | 60,000 | 115,000 |
Land | 50,000 | 70,000 |
Buildings and Equipment | 400,000 | 350,000 |
Less: Accumulated Depreciation | (150,000) | — |
Total Assets | $ 520,000 | $695,000 |
Accounts Payable | $ 10,000 | $ 10,000 |
Bonds Payable | 200,000 | 180,000 |
Common Stock ($5 par value) | 150,000 |
|
Additional Paid-In Capital | 70,000 |
|
Retained Earnings | 90,000 |
|
Total Liabilities and Equities | $ 520,000 |
|
Light Steel shares were selling at $18 and PURE Products shares were selling at $50 just before the merger announcement. Additional cash payments made by PURE Products in completing the acquisition were
Finder’s fee paid to firm that located Light Steel | $10,000 |
Audit fee for stock issued by PURE Products | 3,000 |
Stock registration fee for new shares of PURE Products | 5,000 |
Legal fees paid to assist in transfer of net assets | 9,000 |
Cost of SEC registration of PURE Products shares | 1,000 |
Required
Prepare all journal entries to record the business combination on PURE Products’ books.
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