Rollins acquires 100% of the voting common shares of Baxter on January 1, 2010, in a transaction structured as a statutory merger. The terms of the transaction are that Baxter's shareholders will receive one share of Rollins common stock for each 2 shares Baxter stock outstanding and2,000,000 shares of Rollin's stock outstanding. At the date of acquisition, the par value of Rollin's stock is 1 and the fair value is $30 and the par value of Baxter stock is $2 and the fair value is $14
A, prepare the journal entry to be recorded by Rollins to reflect this acquisition.
B.Assume that in addition 2 the above, Rollins pays 500, 000 to it's attorneys to structure the deal and 2 000, 000 two it's accountants 2 assist in preparing consolidated financial statements. Prepare the journal entries on Rollins books 2 reflect this.
C. Same facts as in B. Above except the acquisition was done on January 1st 2008. Prepare the journal entry on Rollins books to reflect this.
D. Rollins pays 600, 0002 under writers and the Stock Exchange in consideration of the new shares of stock to be issued in the transaction. Prepare the journal entry on Rollins books so reflect this.
e. Same facts as in d. above except that the acquisition was done on January 1st 2008, prepare the journal entry on Rollins books to reflect this.
f. Do the answers to the above a,b,c,d and e above differ if the transaction was structured as either a statutory consolidation or an acquisition?
A. The journal entry recorded by Rollins to reflect the acquisition is as follows:
Debit: Investment in Baxter Stock $14,000,000 (2,000,000 shares x $7 per share fair value)
Credit: Common Stock $2,000,000 (2,000,000 shares x $1 par value)
Credit: Additional Paid-in Capital $12,000,000 ($14,000,000 - $2,000,000)
B. The journal entries to reflect the additional payments made by Rollins are as follows:
Debit: Legal Expenses (Attorneys) $500,000
Credit: Cash $500,000
Debit: Legal Expenses (Accountants) $2,000,000
Credit: Cash $2,000,000
C. The journal entry to reflect the acquisition done on January 1, 2008 is the same as in part B, as there is no specific change related to the year of acquisition:
Debit: Legal Expenses (Attorneys) $500,000
Credit: Cash $500,000
Debit: Legal Expenses (Accountants) $2,000,000
Credit: Cash $2,000,000
D. The journal entry to reflect the payment made to underwriters and the Stock Exchange is as follows:
Debit: Underwriters Expenses $600,000
Credit: Common Stock $600,000
E. The journal entry to reflect the payment made to underwriters and the Stock Exchange for an acquisition done on January 1, 2008, is the same as in part D, as there is no specific change related to the year of acquisition:
Debit: Underwriters Expenses $600,000
Credit: Common Stock $600,000
F. If the transaction was structured as a statutory consolidation or an acquisition, the answers to the above parts A, B, C, D, and E would remain the same. Regardless of the specific structure (merger, consolidation, or acquisition), the accounting treatment for recording the acquisition and any additional payments would follow generally accepted accounting principles.