Question

Bigtime Industries Inc. entered into a business combination agreement with Hydrolized Chemical Corporation (HCC) to ensure an uninterrupted supply of key raw materials and to realize certain economies from combining the operating processes and the marketing efforts of the two companies. Under the terms of the agreement, Bigtime issued 180,000 shares of its $1 par common stock in exchange for all of HCC’s assets and liabilities. The Bigtime shares then were distributed to HCC’s shareholders, and HCC was liquidated.
Immediately prior to the combination, HCC’s balance sheet appeared as follows, with fair values also indicated:


Immediately prior to the combination, Bigtime’s common stock was selling for $14 per share. Bigtime incurred direct costs of $135,000 in arranging the business combination and $42,000 of costs associated with registering and issuing the common stock used in the combination.

Required
a. Prepare all journal entries that Bigtime should have entered on its books to record the business combination.
b. Present all journal entries that should have been entered on HCC’s books to record the combination and the distribution of the stockreceived.


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  • CreatedMay 23, 2014
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