E 1-4 Journal entries to record an acquisitionPam Company issued 480,000 shares of $10 par common stock with a fair value of $10,200,000 for all the voting common stock of Sun Company. In addition, Pam incurred the following costs:Legal fees to arrange the business combination$100,000Cost of SEC registration, including accounting and legal fees  48,000Cost of printing and issuing net stock certificates  12,000Indirect costs of combining, including allocated overhead and executive salaries  80,000Immediately before the acquisition in which Sun Company was dissolved, Sun’s assets and equities were as follows (in thousands): Book ValueFair ValueCurrent assets$ 4,000$ 4,400Plant assets  6,000  8,800Liabilities  1,200  1,200Common stock  8,000 Retained earnings   800 Required:Prepare all journal entries on Pam’s books to record the acquisition.

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Asked Nov 19, 2019
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E 1-4 Journal entries to record an acquisition

  • Pam Company issued 480,000 shares of $10 par common stock with a fair value of $10,200,000 for all the voting common stock of Sun Company. In addition, Pam incurred the following costs:

    Legal fees to arrange the business combination

    $100,000

    Cost of SEC registration, including accounting and legal fees

      48,000

    Cost of printing and issuing net stock certificates

      12,000

    Indirect costs of combining, including allocated overhead and executive salaries

      80,000

    Immediately before the acquisition in which Sun Company was dissolved, Sun’s assets and equities were as follows (in thousands):

     

    Book Value

    Fair Value

    Current assets

    $ 4,000

    $ 4,400

    Plant assets

      6,000

      8,800

    Liabilities

      1,200

      1,200

    Common stock

      8,000

     

    Retained earnings

       800

     

    Required:

    Prepare all journal entries on Pam’s books to record the acquisition.

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Expert Answer

Step 1

Prepare journal entries to record the acquisition.

1.

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Account title and explanation Debit Credit Date Investment in Sun Company Common stock (480,000 x $10) Additional paid in capital (To record the issue of shares) 10,200,000 4,800,000 5,400,000

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Account title and explanation Debit Credit Date Current asset Plant asset 4,400,000 8,800,000 Liabilities 1,200,000 Investment in Sun company Retained earnings (Balancing figure) (To record the gain recognized on investment) 10,200,000 1,800,000

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