McDermott Corporation has been in the midst of a major expansion program. Much of its
growth had been internal, but in 20X1 McDermott decided to continue its expansion through the acquisition of other companies. The first company acquired was Tippy Inc., a small manufacturer of inertial guidance systems for aircraft and missiles. On June 10, 20X1, McDermott issued 17,000 shares of its $25 par common stock for all 40,000 of Tippy’s $10 par common shares. At the date of combination, Tippy reported additional paid-in capital of $100,000 and retained earnings of $350,000. McDermott’s stock was selling for $58 per share immediately prior to the combination. Subsequent to the combination, Tippy operated as a subsidiary of McDermott.

Present the journal entry or entries that McDermott would make to record the business combination with Tippy.

  • CreatedMay 23, 2014
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