Recording a Merger and a Stock Acquisition

The Poonamalie Company paid $4,000,000 in cash to the shareholders of the Slys company for all of Slys' outstanding shares. Attorneys' fees related to the combination were $175,000 paid in cash. A comparison of the book and fair values of Slys' assets and liabilities follows:

	Book Value	Fair Value
Cash and receivables	$120,000	$120,000
Equity method investments	175,000	200,000
Inventory	610,000	400,000
Plant assets	1,600,000	1,000,000
Current liabilities	(340,000)	(340,000)
Long-term debt	(1,090,000)	(1,100,000)
Net assets	$1,075,000	$280,000

Required

a. Prepare the journal entry made by Poonamalie to record the business combination as a merger.

General Journal
Description	Debit	Credit
Cash and receivables	Answer	Answer
Equity method investments	Answer	Answer
Inventory	Answer	Answer
Plant assets	Answer	Answer
AnswerMerger expensesGoodwillInvestment in SlysCash	Answer	Answer
Merger expenses	Answer	Answer
Current liabilities	Answer	Answer
Long-term debt	Answer	Answer
AnswerMerger expensesCashInvestment in SlysGoodwill	Answer	Answer

b. Prepare the journal entry made by Poonamalie to record the business combination as a stock acquisition.

General Journal
Description	Debit	Credit
Investment in Slys	Answer	Answer
AnswerInvestment in SlysCashMerger expensesGoodwill	Answer	Answer
AnswerGoodwillInvestment in SlysMerger expensesCash	Answer	Answer