Following are the account balances of Miller Company and Richmond Company as of December 31, 2016. The fair value of the net assets of Richmond is equal to the book value of the net assets (therefore, the net asset are purchased at book value).
| Miller Company Book Values, 12/31 | Richmond Company Book Values, 12/31 | |
| Cash | 600,000 | 200,000 |
| Receivables | 900,000 | 300,000 |
| Inventory | 1,100,000 | 600,000 |
| Building & Equipment (Net) | 9,000,000 | 800,000 |
| Total Assets | 11,600,000 | 1,900,000 |
| Accounts Payable | 400,000 | 200,000 |
| Notes Payable | 3,400,000 | 1,100,000 |
| Common Stock – $20 Par Value | 2,000,000 | |
| Common Stock – $5 Par Value | 220,000 | |
| Additional Paid-In-Capital | 900,000 | 100,000 |
| Retained Earnings | 4,900,000 | 280,000 |
| Total Liabilities & Equity | 11,600,000 | 1,900,000 |
| Miller Company Book Values, 12/31 | Richmond Company Book Values, 12/31 | |
| Retained Earnings, 1/1 | 2,300,000 | 130,000 |
| Revenues | 6,000,000 | 900,000 |
| Expenses | 3,400,000 | 750,000 |
Additional Information
*On December 31, Miller issues 20,000 shares of its $20 par value common stock for all of the outstanding shares of Richmond Company. The market value of the stock is $30 per share.
*In creating this combination, Miller pays $5000 in stock issue costs and $15,000 in accounting and legal fees.
Required: Using the acquisition method, prepare the necessary journal entries if Miller Company dissolves Richard Company so it is no longer a separate legal entity.
I have started this problem, but wish to make sure the account titles and numbers (debit/credit) are correct. Thank you 🙂
What I have computed …
| Date | Account Title and Explanation | Debit | Credit |
| Cash | 200,000 | ||
| Receivable | 300,000 | ||
| Inventory | 600,000 | ||
| Building & Equipment | 800,000 | ||
| Accounts Payable | 200,000 | ||
| Notes Payable | 1,100,000 | ||
| Common Stock | 400,000 | ||
| Additional Paid-In Capital | 200,000 | ||
| To record acquisition of Richmond Company |
| Date | Account Title and Explanation | Debit | Credit |
| Legal Fees | 15,000 | ||
| Issuance Expense | 5,000 | ||
| Cash | 20,000 | ||
| To record legal fee and expense |
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