Permott Corporation has been in the midst of a major expansion program. Much of its growth had been internal, but in 20X1 Permott decided to continue its expansion through the acquisition of other companies.

 Permott Corporation has been in the midst of a major expansion program. Much of its growth had been internal, but in 20X1 Permott decided to continue its expansion through the acquisition of other companies. The first company acquired was Sippy Incorporated, a small manufacturer of inertial guidance systems for aircraft and missiles. On June 10, 20X1, Permott issued 17,000 shares of its $25 par common stock for all 40,000 of Sippy’s $10 par common shares. At the date of combination, Sippy reported additional paid-in capital of $100,000 and retained earnings of $350,000. Permott’s stock was selling for $58 per share immediately prior to the combination. Subsequent to the combination, Sippy operated as a subsidiary of Permott.

Required:
Prepare the journal entry that Permott would make to record the business combination with Sippy.

 

Explanation
Investment in Sippy Incorporated, Common Stock: $986,000 = $58 × 17,000 shares

Common Stock: $425,000 = $25 × 17,000 shares

Additional Paid-In Capital: $561,000 = ($58 − $25) × 17,000 shares

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