Arturo Company pays $4,060,000 cash and issues 26,600 shares of its $2 par value

Question

Arturo Company pays $4,060,000 cash and issues 26,600 shares of its $2 par value common stock (fair value of $50 per share) for all of Westmont’s common stock in a merger, after which Westmont will cease to exist as a separate entity. Stock issue costs amount to $27,500 and Arturo pays $47,100 for legal fees to complete the transaction.

Prepare Arturo’s journal entry to record its acquisition of Westmont.

Book value Fair value Inventory 260,500 229,750 Land 759,000 1,069,500 Buildings 2,170,000 2,535,250 Customer Relationship 0 825,000 Accounts Payable (119,000) (119,000) Common stock (2,000,000) Additional paid- in capital (500,000) retained earnings 1/1 (413,000) revenues (480,000) Expenses 322,500

Explanation / Answer

Journal Entry to record the Merger Inventory 229750 Land 1069500 Buildings 2535250 Customer Relationship 825000 Capital Reserve 353900 To Accounts Payable 119000 To Cash 4060000 To common Stock 52000 To Stock issue expenses 27500 To Legal Expenses for merger 47100 ( Being all the assets & liabilities are merged as per the scheme)

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