ADVANCED ACCOUNTING UNIT 2 POST PROBLEM 1 - MERGER

On June 30, 200X Carl Corporation purchased Lin Company by issuing 50,000 shares of stock. Stock has a market value of $15.00 per share. This acquisition is to be recorded as a statutory merger through asset acquisition. In this type of business combination Carl company acquires all the assets and liabilities of Lin Company. Lin Company is dissolved and goes out of business. Prepare the entries the purchase and combination on June 30, 200X.

Following information is shown prior to the merger activity being recorded:

Carl Company

Assets Liabilities and Capital

Cash $ 80,000 Current Liabilities $ 80,000

Inventories 80,000

Plant 300,000 Common Stock $5PV 10,000

Land 20,000 Additional Paid in Capital 190,000 Retained Earnings 200,000

Total $480,000 Total $480,000

Lin Company

Assets Liabilities and Capital

Cash $200,000 Current Liabilities $100,000

Accounts Receivable 20,000 Common Stock $10PV 150,000

Plant Assets 530,000 Additional Paid in Capital 400,000 Retained Earnings 100,000

Total $750,000 Total $750,000

Other information:

The Lin Company Plant Assets fair market value is $600,000.

The out of pocket costs of the merger are:

SEC Registration Statement fee $20,000

Legal fees for the SEC Registration Statement $15,000

Accounting fees for the SEC Registration Statement $ 5,000

Finders Fee $ 6,000

Legal fees for the merger $ 2,000

Accounting fees for the merger $ 4,000

1. Prepare and post the entries to record this as a statutory merger. In a statutory merger permanent dissolution of the subsidiary occurs at the combination date.

2. Prepare an after merger balance sheet.

Fill out sheet below:

C E F G H K M N O P Q R S Template Post Problem 1 Statutory Merger SEC Registration Fee 20,000 stock issue SEC Registration legal fees 20,000 stock issue Finder's fee 6,000 merge Carl Corporation General Ledger Carl Corporation Merger legal fees 2,000 merge Balance Sheet Merger accounting fees 4,000 merger Cash Plant Liabilities Assets Liabilities and Equity 52,000 80,000 300,000 80,000 Cast Liabilities Accts. Rec. Inventory Capital Stock Plant Paid in capital Merger Expense Lanc Retained earnings Cash Goodwill Accounts Receivable Land Capital Stock Total Total Paid in Capital 20,000 10,000 Cash Investment in Lin Company Common Stock nventory Investment in Lin Co. Paid in Capital Paid in Capital 80,000 190,000 Cash Accounts receivable Goodwill Plant Merger Expense Retained Earnings Goodwill 200,000 Liabilities Investment in Lin Co. Computation of Goodwill Fair Value of Consideration transferred Book value of Lin Co. Excess fair value over book Allocated to plant Goodwill 30,000