Plant and equipment (net)
Common stock ($5 par value)
Other contributed capital
A. Prepare the journal entries on the books of Preston Company to record the purchase of the
assets and assumption of the liabilities of Saville Company if the amount paid was
$1,560,000 in cash.
B. Repeat the requirement in (A) assuming the amount paid was $990,000.
Exercise 2-2 Purchase Method
The balance sheets of Petrello Company and Sanchez Company as of January 1, 2004, are
presented below. On that date, after an extended period of negotiation, the two companies
agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common