
Concept explainers
a.
Concept Introduction:
Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.
To Explain: Journal entries that P should have entered on its books to record the business combination.
a.

Explanation of Solution
Following
Particular | Debit ($) | Credit ($) | |
Merger Expense | |||
To Cash | |||
(Being legal fees paid.) | |||
Deferred Stock Issue Cost | |||
To Cash | |||
(Being common stock purchased.) | |||
Cash | |||
Accounts Receivable | |||
Inventory | |||
Long Term Investments | |||
Land | |||
Rolling Stock | |||
Plant and Equipment | |||
Patents | |||
Special Licenses | |||
Discount on Equipment trust notes | |||
Discount on Debentures | |||
Goodwill | |||
To Current Payables | |||
To Mortgages Payable | |||
To Premium on Mortgages Payable | |||
To Equipment Trust Notes | |||
To Debentures Payable | |||
To Common Stock | |||
To Additional Paid-in capital | |||
To Deferred Stock Issue Costs | |||
(Being legal fees paid) | |||
Total |
Computation of Goodwill:
Value of stock issued:
Fair value of assets acquired:
Fair value of liabilities acquired:
Goodwill:
b.
Concept Introduction:
Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.
To Explain: Journal entries that should have been entered on S’s books to record the combination and the distribution of the stock received.
b.

Explanation of Solution
Following journal entry would be recorded:
Particular | Debit | Credit | |
Investment account | |||
Allowance for | |||
Current Payables | |||
Mortgages payable | |||
Equipment Trust Notes | |||
Debentures Payable | |||
To Discount on Debentures Payables | |||
To Cash | |||
To Accounts Receivable | |||
To Inventory | |||
To Long Term Investments | |||
To Land | |||
To Rolling Stock | |||
To Plant and Equipment | |||
To Patents | |||
To Special Licenses | |||
To Gain on sale of assets and liabilities | |||
(Being asset purchased.) | |||
Common Stock | |||
Additional paid in Capital-common stock | |||
To Treasury Stock | |||
(Being common stock purchased.) | |||
Common Stock | |||
Additional Paid-in Capital-Common | |||
Additional Paid-in Capital-Retirement Preferred | |||
Retained Earnings | |||
To Investment account | |||
(Being purchase of common stock.) | |||
Total | 7409700 | 7409700 |
Common Stock
Additional paid in capital
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Chapter 1 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
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