On January 2, 2005, Presto Corporation issued 10,000 shares of its $1 par (current fair value…

On January 2, 2005, Presto Corporation issued 10,000 shares of its $1 par (current fair value $40) common stock for all 50,000 shares of Shuey Company’s outstanding common stock in a statutory merger that qualified as a business combination. Out-of-pocket costs in connection with the combination, paid by Presto on January 2, 2005, were as follows:

For income tax purposes, the business combination qualified as a “Type A tax-free corporate reorganization.” The balance sheet of Shuey Company on January 2, 2005, with associated current fair values of assets and liabilities, was as follows:

The income tax rate for both Presto and Shuey is 40%.


Prepare journal entries for Presto Corporation to record the business combination with Shuey Company on January 2, 2005, including deferred income taxes.

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