Chapter 5 Business Combinations

To Record the Journal Entries of the Combinor 1. Acquisition: a. If Acquisition of Net assets is in Cash Account Investment in Combinee Cash Dr Cr

b. If Acquisition of Net assets is by issuing shares of common stock Account Dr Cr Investment in Combinee (No. of Shares x Current Fair Value) Common Stock C/S (No. of Shares x Par Value) Paid In Capital In Excess of Par Value (Investment C/S) c. If Acquisition of Net assets is by issuing bonds Account Dr Cr Investment in Combinee (Present Value of Bonds) Bonds Discount (if Face Amount > Present Value) Bonds Payable (Face Amount of Bonds) Bond Premium (If Face Amount < Present Value)

2. Payment of Out-Of-Pocket Costs - Direct Cost: Accounting fees, legal fees, finders or brokerage fees - Indirect Cost: Registration Cost, SEC a. If Acquisition was in Cash Account Dr Cr Investment in Combinee (The problem will include only direct cost) Cash

b. If Acquisition of Net assets is by issuing shares of common stock Account Dr Cr Investment in Combinee (Direct cost) Paid In Capital In Excess (Indirect Cost) Cash (Total out of pocket cost) Direct + Indirect c. If Acquisition of Net assets is by issuing bonds Account Dr Cr Investment in Combinee (Direct cost) Bond Issue Cost (Indirect Cost) Cash (Total out of pocket cost) Direct + Indirect

3. Receiving Assets, Liabilities, and Closing Investment Account - All Assets and Liabilities are recorded with their Current Fair Values - If Current Fair Value differs from Carrying Amount of Assets or Liabilities, Chose the Current Fair Value

Account Dr Cr Current Assets Plant Assets Other Assets Good Will (Total Cr Side Total Dr Side) Bond Discount ( L.T.D Carrying Amount - L.T.D Current Fair Value) Current Liabilities Long-Term Debt Investment in Combinee (Acquisition + Out-Of-Pocket)