Question

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

	Book Value			Fair Value
Inventory	$	692,500		$	643,750
Land		757,500			1,047,750
Buildings		1,755,000			2,073,750
Customer relationships		0			804,750
Accounts payable		(102,000	)		(102,000	)
Common stock		(2,000,000	)
Additional paid-in capital		(500,000	)
Retained earnings 1/1		(434,500	)
Revenues		(488,500	)
Expenses		320,000

Arturo Company pays $3,580,000 cash and issues 29,800 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 $28,200 and Arturo pays $49,100 for legal fees to complete the transaction.

Prepare Arturo’s journal entry to record its acquisition of Westmont. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

The journal entries required are:

Transaction	Accounts title	Debit	Credit
1	Inventory	$643,750
	Land	$1,047,750
	Building	$2,073,750
	Customer Relationship	$804,750
	Goodwill [balancing figure]	$602,000
	Accounts Payable		$102,000
	Common Stock [29800 shares x $ 2]		$59,600
	Additional Paid in Capital [29800 shares x $48]		$1,430,400
	Cash		$3,580,000
	(to record the acquisition)
2	Professional Service Expense	$49,100
	Cash		$49,100
	(to record legal fees)
3	Additional Paid in Capital	$28,200
	Cash		$28,200
	(Stock issue cost)

In Entry #1, all assets taken over and liabilities taken over are recorded at Fair Value [debited and credited respectively]. Amount paid as purchase consideration is credited [Cash, Common Stock, additional capital), and difference is debited to Goodwill account.