Question

The following book and fair values were available for Westmont Company as of March 1.

	Book Value			Fair Value
Inventory	$	367,500		$	318,000
Land		756,000			998,250
Buildings		2,040,000			2,346,000
Customer relationships		0			842,250
Accounts payable		(88,000	)		(88,000	)
Common stock		(2,000,000	)
Additional paid-in capital		(500,000	)
Retained earnings, 1/1		(412,000	)
Revenues		(446,000	)
Expenses		282,500

Arturo Company pays $3,740,000 cash and issues 21,500 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 $31,700 and Arturo pays $46,100 for legal fees to complete the transaction.

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

- Record the acquisition of Westmont Company.

- Record the legal fees related to the combination.

- Record the payment of stock issuance costs.

Answer 1

Event	Account Titles and Explanation	Debit	Credit
a	Inventory	$ 318,000
	Land	$ 998,250
	Buildings	$ 2,346,000
	Customer relationships	$ 842,250
	Goodwill	$ 398,500
	Cash		$ 3,740,000
	Accounts payable		$ 88,000
	Common stock            (21,500 Shares x $ 2)		$ 43,000
	Additional paid in capital          (21,500 Shares x ( $ 50 (-)$ 2)		$ 1,032,000
	( To record the acquisition of Westmont Company )
b	Professional Services Expense	$ 46,100
	Cash		$ 46,100
	( To record the legal fees related to the combination
c	Additional paid in capital	$ 31,700
	Cash		$ 31,700
	( To record the payment of stock issuance costs )