On January 1, 20x5, Frost Company acquired all of TKK Crop’s assets and liabilit

Question

On January 1, 20x5, Frost Company acquired all of TKK Crop’s assets and liabilities by issuing 24,000 shares of its $4 par value common stock. At that date, Frost shares were selling at $22 per share. Frost paid merger expense in legal fees for the transfer of assets and liabilities of $12,000. Frost also paid stock issue costs of $15,000 related to the issuance of new shares. Historical cost and fair value balance sheet data for TKK at the time of acquisition were as follows:

Prepare the Journal entries made by Frost to record the business combination.

Balance Sheet ttem Cash and Receivables Irwerntory Buildin&Euipment; Less: Accumulated Depreciation $ (240,000) Total Assets Historical Cost Fair Value $28,000$28.000 $93,CCO$120,CCC $60O,CCO$ 460,CCC $481,000$ 608,CCC $40,000$40,000 $65,0CO$62,CCC Accounts Payable Notes Payable Common Stock ($10 parvalue)$ Retaïned Eanings Total Liabilities & Equity 160,000 $216,0CO $ 481,0co

Explanation / Answer

Solution:-

(1) Merger exp A/c Dr. 12000

TO cash 12000

(To record merger exp legal fee)

(2) Deferred Stock issue cost A/c Dr 15000

To Cash 15000

(to record stock issue cost)

(3) Cash A/c Dr. 28000

Inventory Dr 120000

Building Dr 460000

Goodwill Dr 22000   

To A/c Payable 40000

To Notes Payable 62000

To common stock 96000

To additional paid up capital 417000

To deferref stock issue cost 15000

(to record merger with TKK)

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