Merrill acquires 100 percent of the outstanding voting shares of Harriss Company on January 1, 2008. To obtain these shares, Merrill pays $200,000 is cash and issues 10,000 shares of its own $10 par value common stock. On the date, Merrill's stock has a fair value of $18 per share. Merrill paid an additional $6,000 in stock issuance costs.
The book values for both Merrill and Harriss as of January 1, 2008, follow. The fair value of each of Harriss's accounts is also included. In addition, Harriss holds a fully amortized patent that still retains a $30,000 value.
Harriss Company
Merrill, Inc
Book Values Book Values Fair Values
Cash $300,000 $40,000 $40,000
Receivables 160,000 90,000 80,000
Inventory 220,000 130,000 130,000
Land 100,000 60,000 60,000
Buildings(net) 400,000 110,000 140,000
Equipment(net) 120,000 50,000 50,000
Accounts payable (160,000) (30,000) (30,000)
Long-termliabilities(380,000) (170,000)(150,000)
Common stock (400,000) (40,000)
Retained earnings (360,000) (240,000)
A. Assume that this combination is a statutory merger so that Harriss's accounts are to be transferred to Merrill's records with Harriss subsequently being dissolved as a legal corporation. Prepare the journal entries for Merrill to record this merger.
B. Assume that no dissolution is to take place in connection with this combination. Rather, both companies retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of January 1, 2008.