4) On January 2, 2013 Palta Company issued 80,000 new shares of its $5 par value
common stock valued at $12 a share for all of Sudina Corporation’s outstanding common
shares. Palta paid $5,000 for the direct combination costs of the accountants. Palta paid
$18,000 to register and issue shares. The fair value and book value of Sudina’s identifiable
assets and liabilities were the same. Summarized balance sheet information for both
companies just before the acquisition on January 2, 2013 is as follows:
Palta Sudina
Cash $75,000 $60,000
Inventories 160,000 200,000
Other current assets 200,000 250,000
Land 175,000 125,000
Plant assets-net 1,500,000 750,000
Total Assets $2,110,000 $1,385,00
Accounts payable $100,000 $155,000
Notes payable 700,000 330,000
Capital stock, $2 par 600,000 250,000
Additional paid-in capital 450,000 50,000
Retained Earnings 260,000 600,000
Total Liabilities & Equity $2,110,000 $1,385,000
Required:
1. Prepare Palta’s general journal entry for the acquisition of Sudina assuming that Sudina
survives as a separate legal entity.
2. Prepare Palta’s general journal entry for the acquisition of Sudina assuming that Sudina
will dissolve as a separate legal entity.
Answer:
1. General journal entry recorded by Palta for the acquisition of Sudina (Sudina survives as
a separate legal entity):
Investment in Sudina 960,000
Common stock 400,000
Additional paid-in capital 560,000
Investment expense 5,000
Additional paid-in capital 18,000
Cash 23,000
2. General journal entry recorded by Palta for the acquisition of Sudina (Sudina dissolves
as a separate legal entity):
Cash 37,000
Inventories 200,000