Question

On June 30, 200X Carl Corporation purchased Lin Company by issuing 50,000 shares of stock. Stock has a market value of $15.00 per share. This acquisition is to be recorded as a statutory merger through asset acquisition. In this type of business combination Carl company acquires all the assets and liabilities of Lin Company. Lin Company is dissolved and goes out of business.   Prepare the entries the purchase and combination on June 30, 200X.

Following information is shown prior to the merger activity being recorded:

Carl Company

Assets                                                                          Liabilities and Capital

Cash                                         $ 80,000                       Current Liabilities                       $ 80,000

Inventories                                    80,000

Plant                                           300,000                       Common Stock $5PV                   10,000

Land                                             20,000                      Additional Paid in Capital           190,000                                                                                                Retained Earnings                     200,000

Total                             $480,000                                   Total                             $480,000

Lin Company

Assets                                                                          Liabilities and Capital

Cash                                         $200,000                       Current Liabilities                       $100,000

Accounts Receivable                     20,000                      Common Stock $10PV             150,000

Plant Assets                             530,000                       Additional Paid in Capital           400,000                                                                                               Retained Earnings                     100,000

Total                             $750,000                                   Total                             $750,000

Other information:

The Lin Company Plant Assets fair market value is $600,000.

The out of pocket costs of the merger are:

SEC Registration Statement fee                                     $20,000

Legal fees for the SEC Registration Statement               $15,000

Accounting fees for the SEC Registration Statement       $ 5,000

Finders Fee                                                                   $ 6,000

Legal fees for the merger                                               $ 2,000

Accounting fees for the merger                                      $ 4,000

1. Prepare and post the entries to record this as a statutory merger. In a statutory merger permanent dissolution of the subsidiary occurs at the combination date.

2. Prepare an after merger balance sheet.

Answer 1

1

Descriptions	Debit $	Credit $
Cash   A/c…………….dr	200,000
Accounts Receivable	20,000
Plant assets	600,000
`Good will	30,000
Liabilities acquired		100,000
Common Shares issued		750000
( to record the assets and liabilities acquired and goodwill )
Merger Expenses	52000
Cash(20+15+5+6+2+4)=52000		52000
(to merger expenses paid)

2

After Merger Balancesheet

Liabilities and Capital	Amount $	Assets	Amount $
Current Liabilities	180000	Goodwill	30000
Common Stock $5	260000	Cash (280000 - 52000)	228000
Additional Paid in Capital	690000	AR	20000
Retained Earnings(200000-52000)	148000	Inventories	80000
		Plant (300000+600000)	900000
		Land	20000
Total	1278000	Total	1278000