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1. The following book and fair values were available for Honeycutt Industries: Account Book Value Fair Value Inventory $630,000 500,000 Land $750,000 790,000 Buildings $1,700,000

1. The following book and fair values were available for Honeycutt Industries:

Account

Book Value

Fair Value

Inventory

$630,000

500,000

Land

$750,000

790,000

Buildings

$1,700,000

1,900,000

Customer Relationships

0

500,000

Accounts Payable

($80,000)

(80,000)

Common Stock

($2,000,000

Additional Paid in Capital

($500,000)

Retained Earnings, 1/1

($360,000)

Revenues

($420,000)

Expenses

$280,000

Flagg Inc. pays $3,000,000 cash and issues 10,000 shares of its $3 par value common stock (fair value of $50 per share) for all of Honeycutts common stock in a merger, after which Honeycutt Industries will cease to exist as a separate entity. Stock issue costs amount to $15,000 and Flagg pays $32,000 for legal fees to complete the transaction.

Required:

Prepare Flaggs journal entries to record the acquisition of Honeycutt Industries.

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