P1-27 Journal Entries to Record a Business Combination
On January 1, 20X2, Frost Company acquired all of TKK Corporation's assets and liabilities by issuing
24,000 shares of its $4 par value common stock. At that date, Frost shares were selling at $22 per share.
Historical cost and fair value balance sheet data for TKK at the time of acquisition were as follows:
Balance Sheet Item Historical Cost Fair Value
Cash and Receivables $ 28,000 $ 28,000
Inventory 94,000 122,000
Buildings and Equipment 600,000 470,000
Less: Accumulated Depreciation (240,000)
Total Assets $482,000 $620,000
Accounts Payable $ 41,000 $ 41,000
Notes Payable 65,000 63,000
Common Stock ($10 par value) 160,000
Retained Earnings 216,000
Total Liabilities and Equities $482,000
Frost paid legal fees for the transfer of assets and liabilities of $14,000, audit fees of $21,000, and listing
application fees for the new shares of $7,000.
Prepare the journal entries made by Frost to record the business combination.© BrainMass Inc. brainmass.com June 3, 2020, 11:11 pm ad1c9bdddf
DR: Cash and receivables 28,000
DR: Inventory 122,000
DR: Buildings and equipment (net) 470,000-46000 424,000
The solution examines journal entries to record a business combination.