Reference no: EM131582978
Question - The financial statements for Peter Inc. and Runner Corp., just prior to their combination, for the year ending December 31, 20X6, follow. Runner's buildings were undervalued on its financial records by $70,000.
Peter Inc.
Runner Corp.
Revenues
$1,350,000
$520,000
Expenses
(1,200,000)
(280,000)
Net income
$150,000
$240,000
Retained earnings, January 1, 20X6
650,000
510,000
Net income (above)
150,000
240,000
Dividends paid
(120,000)
(100,000)
Retained earnings, December 31, 20X6
$680,000
$650,000
Cash
$190,000
$130,000
Receivables and inventory
250,000
260,000
Buildings (net)
720,000
410,000
Equipment (net)
440,000
520,000
Total assets
$1,600,000
$1,320,000
Liabilities
$200,000
$170,000
Common stock
700,000
410,000
Additional paid-in capital
120,000
90,000
Retained earnings, December 31, 20X6 (above)
680,000
650,000
Total liabilities and stockholders' equity
$1,600,000
$1,320,000
On December 31, 20X6, Peter issued 50,000 new shares of its $7 par value stock in exchange for all the outstanding shares of Runner. Peter's shares had a fair value on that date of $40 per share. Peter paid $40,000 to an investment bank for assisting in the arrangements. Peter also paid $25,000 in stock issuance costs to effect the acquisition of Runner. Runner will retain its incorporation.
Required:
(1) Prepare the journal entry to record the issuance of common stock by Peter.
(2) Prepare the journal entry to record the payment of combination costs.
(3) Determine consolidated net income for the year ended December 31, 20X6.
(4) Determine consolidated additional paid-in capital at December 31, 20X6.