On March 31, 2005, combinor company issued 100.000 shares of its S1 par common s

Question

On March 31, 2005, combinor company issued 100.000 shares of its S1 par common stock (current fair value $5 a share) for the net assets of Combinee company Also on that date, Combinor paid the following out-of-pocket costs in connection with the combination Finder's accounting and legal fees relating to business combination $70,000 Costs associated with SEC registration statement 50,000 Total out-of-pocket costs of business combination 20,000 The balance sheet of combination on March 31, 2005, with related current fair values, was as follows COMBINEE COMPANY Balance sheet (prior to business combination) March 31, 2005 Carrying Current Amounts Fair Values Assets Current assets Plant assets (net) Other assets (none intangible) Total assets S200,000 $260,000 400,000 480,000 140.000 S740,000 Liabilities and Stockholders'" Equity Current liabilities S 80,000 $ 80,000 260,000 260,000 Long-term debt no par or stated value 50,000 250,000 Retained earning Total liabilities and stockholders' equity $740.000 Instructions: Prepare journal entries (omi explanations) for Combinor company on March 31, 2005, to record the business combination with Combinee company. (Disregard income taxes)

Explanation / Answer

In the Books of Combinor Company Purchase Consideration Business Purchase A/c Dr 100000 To Liquidator of Combinee A/c Cr 100000 For Acquisition of Assets and Liabilites Current Assets Dr 200000 Plant Assets Dr 400000 Other Assets Dr 140000 To Current Liabilities Cr 80000 TO Long Term Debt Cr 260000 To Reserves Cr 300000 To Business Purchase Account Cr 100000 For Payment of Consideration Liquidator of Combinee A/c Dr 100000 To Equity Share capital A/c Cr 100000 For Expenses on Business Combination Legal Charges A/c Dr 240000 To Cash/Bank A/c Cr 240000

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