Question

Condensed balance sheets for Smith and Jones on January 1, 2019 are as follows: Current Assets Plant and Equipment, Net Total Assets Smith $180,000 450,000 $630,000 Jones $85,000 140,000 $225,000 Total Liabilities Common Stock, $10 par value Other Contributed Capital Retained Earnings (deficit) Total Liabilities and Equities $95,000 350,000 125,000 60,000 $630,000 $35,000 160,000 53,000 -23,000 $225,000 On January 1, 2019, Smith and Jones agreed to a consolidation. Because the FASB requires one party to be the buyer or acquiring party, it was agreed that Smith would acquire Jones. Smith agreed to issue 20,000 shares of its $10 par value stock to acquire all the net assets of Jones at the time when Smith's common stock was $ 15 per share. On the date of consolidation, the fair value of Jones current assets and liabilities were equal to their book values. The fair value of plant and equipment was $150,000. Smith will incur $20,000 of direct acquisition costs and $6,000 in stock issue costs. Required: Prepare the journal entries on the books of Smith to record the acquistion of Jones Company net assets.

Answer 1

Preparation of Journal entries on the books of Smith to record the acquisition of Jones Company net assets

Date	Account tittles and explanation	Debit	Credit
	Acquisition expense a/c	$20000
	Stock issue costs a/c	$6000
	To Cash a/c		$26000
	[Being to record expenses on acquisition]
	Current assets a/c	$85000
	Plant and equipment a/c	$150000
	Goodwill a/c {$300000-$200000}	$100000
	To Total liabilities a/c		$35000
	To common stock a/c {20000 shares*$10}		$200000
	To Other contributed capital a/c [WN 1]		$100000
	[Being to record acquisition of net assets in exchange of stock]

Working notes [WN]:

1)Other contributed capital:

Other contributed capital

= Total value of stock issued - Shares issued at par values

=(20000*$15) -(20000*$10)

=$300000-$200000

=$100000

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