Question

On January 1, 20X2, Prost Company acquired all of SKK Corporation’s assets and liabilities by issuing 24,100 shares of its $6 par value common stock. At that date, Prost shares were selling at $24 per share. Historical cost and fair value balance sheet data for SKK at the time of acquisition were as follows: Balance Sheet Item Historical Cost Fair Value Cash & Receivables $ 24,000 $ 24,000 Inventory 106,000 111,000 Buildings & Equipment 605,000 450,000 Less: Accumulated Depreciation (231,000 ) Total Assets $ 504,000 $ 585,000 Accounts Payable $ 49,000 $ 49,000 Notes Payable 74,000 72,000 Common Stock ($10 par value) 177,000 Retained Earnings 204,000 Total Liabilities & Equities $ 504,000 Prost paid legal fees for the transfer of assets and liabilities of $22,000. Prost also paid audit fees of $26,000 and listing application fees of $15,000, both related to the issuance of new shares. Required: Prepare the journal entries made by Prost to record the business combination. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the costs of issuing stock.

Note: Enter debits before credits.

	Event General Journal Debit Credit 2

Answer 1

Balance Sheet Item	Historical Cost	Fair Value
Cash & Receivables	$              24,000	$               24,000
Inventory	$           106,000	$            111,000
Buildings & Equipment	$           605,000	$            450,000
Less: Accumulated Depreciation	$         (231,000)
Total Assets	$           504,000	$            585,000
Accounts Payable	$              49,000	$               49,000
Notes Payable	$              74,000	$               72,000
Common Stock ($10 par value)	$           177,000
Retained Earnings	$           204,000
Total Liabilities & Equities	$           504,000
Total Assets		$            585,000
Less: Total Liabilities (49000+72000)		$            121,000
Net Assets		$            464,000
Value of share issued (24100*24)		$            578,400
Less: Net Assets		$            464,000
Value of Goodwill		$            114,400

Event	General Journal	Debit	Credit
a	Merger Expense	22,000
	Deferred Stock Issue Costs (26000+15000)	41,000
	Cash		63,000
	(To record common stock issuance costs.)
b	Cash & Receivables	24,000
	Inventory	111,000
	Buildings & Equipment	450,000
	Goodwill	114,400
	Accounts Payable		49,000
	Notes Payable		72,000
	Common Stock (24100 * 6 par value)		144,600
	Additional Paid-In Capital (24-6=18) ((24100*18)-41000)		392,800
	Deferred Stock Issue Costs		41,000
	(To record acquisition of SKK Corporation.)