The Poonamalie Company paid $6,000,000 in cash to the shareholders of the Slys Company for all of Slys’ outstanding shares. Attorneys’ fees related to the combination were $200,000, paid in cash. A comparison of the book and fair values of Slys’ assets and liabilities follows:
Book Value Fair Value
Cash and receivables $50,000 $50,000
Equity method investments 300,000 400,000
Inventory 700,000 300,000
Plant assets, net. 2,000,000 1,200,000
Current liabilities (350,000) (350,000)
Long-term debt (1,800,000) (1,700,000)
Net assets $900,000 $(100,000)
Required
a. Prepare the journal entry made by Poonamalie to record the business combination as a merger.
General Journal
Description Debit Credit
Cash and receivables Answer Answer
Equity method investments Answer Answer
Inventory Answer Answer
Plant assets Answer Answer
AnswerCashGoodwillMerger
expensesInvestment in Slys Answer Answer
Merger expenses (income) Answer Answer
Current liabilities Answer Answer
Long-term debt Answer Answer
AnswerCashGoodwillMerger
expensesInvestment in Slys Answer Answer
b. Prepare the journal entry made by Poonamalie to record the business combination as a stock acquisition.
General Journal
Description Debit Credit
Investment in Slys Answer Answer
AnswerCashGoodwillMerger
expensesInvestment in Slys Answer Answer
AnswerCashGoodwillMerger
expensesInvestment in Slys Answer Answer