Question

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

Required: Present the journal entry or entries that McDermott would make to record the business combina- tion with Tippy.

Answer 1

Step-by-step explanation:

Investment in Tippy Inc., Common stock 986000 [17000*58]

Common stock 425000 [17000*25]

Additional paid-in capital 561000