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Purchases method of accounting for business combination and Acquisition method

Problem #24 Purchases Method of accounting for business combination.

Merril acquires 100 percent of the outstanding voting shares of Harris company on January 1, 2006. To obtain these shares, Merrill pays $200,000 in cash and issues 10,000 shares of its own $10 par value common stock. On this date, Merrill's stock has a fair value of $18 per share. Merril paid an additional pays $10,000 to local investment for arranging the acquisition . Merrill paid an additional $6,000 in stock issuance costs.
The book values for both Merril and Harriss as of January 1, 2006, follow. The fair value of each of Harriss's accounts is also included. In addition, Harriss holds a fully amortized patent that still retains $30,000 value.

Harriss Company

Merrill Inc. Book Value Fair Value
Book Value

Cash....................................$300,000 $40,000 $40,000
Receivables............................ 160,000 90,000 80,000
Inventory...............................220,000 130,000 130,000
Land.....................................100,000 60,000 60,000
Building (net)..........................400,000 110,000 140,000
Equipment (net)......................120,000 50,000 50,000
Accounts Payable....................(160,000) (30,000) (30,000)
Long Term Liabilities.............. (380,000) (170,000) (150,000)
Common Stock....................... (400,000) (40,000)
Retained earnings................... (360,000) (240,000)

(a) Assume that this combination is a statutory merger so that Harriss's accounts are to be transferred to the records of Merrill's with subsequently being dissolved as a legal corporation .
Prepare the journal entries for Merrill to record this merger.

(b) Assume that the dissolution is to take place in connection with this combination. Rather, both companies retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of January 1, 2006.

Problem #27 Acquisition Method

Allerton Company acquires all the assets and liabilities of Deluxe Company for cash on January 1, 2006, and subsequently formally dissolves Deluxe. At the acquisition date, the following book and fair values were available for the Deluxe accounts:

Deluxe Accounts

Book Value Fair Value

Current Assets............................... $60,000 $60,000

Building ...................................... 90,000 50,000

Land.......................................... 10,000 20,000

Trademark................................... -0- 30,000

Goodwill..................................... 15,000 ?

Liabilities.................................... (40,000) (40,000)

Common Stock............................. (100,000)

Retained earnings......................... (35,000)

(a)- Using the purchase method, prepare Allenton's entry to record its acquisition of Deluxe in its accounting records assuming the following cash exchange amounts.
(1) $145,000
(2) $110,000

(b)- Using the acquisition method, prepare allerton's entry to record its acquisition of Deluxe in its accounting records assuming the following cash exchange amounts:
(1) $145,000
(b) $110,000

Solution Summary

Merril acquires 100 percent of the outstanding voting shares of Harris company on January 1, 2006. To obtain these shares, Merrill pays $200,000 in cash and issues 10,000 shares of its own $10 par value common stock. On this date, Merrill's stock has a fair value of $18 per share. Merril paid an additional pays $10,000 to local investment for arranging the acquisition . Merrill paid an additional $6,000 in stock issuance costs.

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