Pit Corporation pays $400,000 cash and issues 50,000 shares of Pit Corporation $10 par common stock with a market value of $20 per share for the net assets of Sad Company. The following entries record the business combination on the books of Pit Corporation on December 27, 2011.
|
Investment in Sad Company (+A) |
1,400 |
|
Cash ( A) |
400 |
|
Common stock, $10 par (+SE) |
500 |
|
Additional paid in capital (+SE) |
500 |
|
To record issuance of 50,000 shares of $10 par common stock plus $400,000 cash in a business combination with Sad Company. |
|
|
Cash (+A) |
50 |
|
Net receivables (+A) |
140 |
|
Inventories (+A) |
250 |
|
Land (+A) |
100 |
|
Buildings (+A) |
500 |
|
Equipment (+A) |
350 |
|
Patents (+A) |
50 |
|
Goodwill (+A) |
200 |
|
Accounts payable (+L) |
60 |
|
Notes payable (+L) |
135 |
|
Other liabilities (+L) |
45 |
|
Investment in Sad Company ( A) |
1,400 |
|
To assign the cost of Sad Company to identifiable assets acquired and liabilities assumed on the basis of their fair values and to goodwill. |
|
We assign the amounts to the assets and liabilities based on fair values, except for goodwill. We determine goodwill by subtracting the $1,200,000 fair value of identifiable net assets acquired from the $1,400,000 purchase price for Sad Company’s net assets.