How to Prepare the Entries on the Books to Record the Shares Purchase and the Merger

by Kathy Adams McIntosh

Sometimes the owners or shareholders of a company decide that it would be advantageous to grow their business by merging with another company. Mergers often increase the resources available to both firms and allow the companies to pursue more ambitious business objectives. When two companies merge, in a typical scenario, one acquires the shares of the other and the acquiring company is the surviving entity after the merger. That firm combines the assets and liabilities from the dissolving company with its own, using a journal entry to update the accounting records.

Create a journal entry form in Microsoft Excel by opening a new worksheet. Type the following headings into the first four cells in the top row: "Date," "Description," "Debit" and "Credit."

Type the date of the merger on the first line in the "Date" column.

Identify the assets acquired in the purchase. Read through the appraisal reports to determine the fair market value of each asset.

Type each asset description on a separate row in the "Description" column. Type the fair market value of each asset in the "Debit" column. In accounting, assets increase with debit entries and decrease with credit entries.

Read the acquired company’s balance sheet and identify the liabilities acquired through the merger.

Input each liability on a separate row in the "Description" column. Enter the current value of each liability in the "Credit" column. In accounting, liabilities increase with credit entries.

Review the stock purchase agreement. Identify the number of shares purchased and the price paid per share.

Multiply the number of shares by the purchase price to calculate the total amount paid.

Type the word “Cash” on the next row in the "Description" column. Type the total amount paid in the "Credit" column. Cash is an asset and decreases with a credit entry.

Add the total cash and the total liabilities. Subtract the total assets. This calculates the value of goodwill.

Type the word “Goodwill” on the next row in the "Description" column. Enter the total amount calculated in the "Debit" column.

Add the total numbers in the "Debit" column, and then add the total numbers in the "Credit" column. Confirm that these two numbers are equal. This completes the accounting entry to record the merger.

About the Author

Kathy Adams McIntosh started writing professionally in 2001. She has been published in "Cup of Comfort," "Community Connection" and "Wisconsin Christian News." Adams McIntosh belongs to the Fearless Freelancers and the Broadway Writers Guild. She earned her Master of Business Administration from the University of Wisconsin.

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