Question
The financial statements for Jobe Inc. and Lake Corp., just prior to their combination, for the year ending December 31, 20X2, follow. Lake's buildings were
The financial statements for Jobe Inc. and Lake Corp., just prior to their combination, for the year ending December 31, 20X2, follow. Lake's buildings were undervalued on its financial records by $60,000.
| Jobe Inc. | Lake Corp. |
Revenues | $1,300,000 | $500,000 |
Expenses | (1,180,000) | (290,000) |
Net income | $120,000 | $210,000 |
|
|
|
Retained earnings, January 1, 20X2 | 700,000 | 500,000 |
Net income (above) | 120,000 | 210,000 |
Dividends paid | (110,000) | (110,000) |
Retained earnings, December 31, 20X2 | $710,000 | $600,000 |
|
|
|
Cash | $160,000 | $120,000 |
Receivables and inventory | 240,000 | 240,000 |
Buildings (net) | 700,000 | 350,000 |
Equipment (net) | 700,000 | 600,000 |
Total assets | $1,800,000 | $1,310,000 |
|
|
|
Liabilities | $250,000 | $195,000 |
Common stock | 750,000 | 430,000 |
Additional paid-in capital | 90,000 | 85,000 |
Retained earnings, December 31, 20X2 (above) | 710,000 | 600,000 |
Total liabilities and stockholders' equity | $1,800,000 | $1,310,000 |
On December 31, 20X2, Jobe issued 54,000 new shares of its $10 par value stock in exchange for all the outstanding shares of Lake. Jobe's shares had a fair value on that date of $35 per share. Jobe paid $34,000 to an investment bank for assisting in the arrangements. Jobe also paid $24,000 in stock issuance costs to effect the acquisition of Lake. Lake will retain its incorporation. Required: (1) Prepare the journal entry to record the issuance of common stock by Jobe. (2) Prepare the journal entry to record the payment of combination costs. (3) Determine consolidated net income for the year ended December 31, 20X2. (4) Determine consolidated additional paid-in capital at December 31, 20X2.
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