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    Journal Entries to Record a Business Combination

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    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.

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    Solution Preview


    DR: Cash and receivables 28,000
    DR: Inventory 122,000
    DR: Buildings and equipment (net) 470,000-46000 424,000
    CR: ...

    Solution Summary

    The solution examines journal entries to record a business combination.