Question

Use the following information to answer questions 12-13

[The following information applies to the questions displayed below.]

On May 1, Donovan Company reported the following account balances:

Current assets	$	115,000
Buildings & equipment (net)		250,500
Total assets	$	365,500
Liabilities	$	72,000
Common stock		150,000
Retained earnings		143,500
Total liabilities and equities	$	365,500

On May 1, Beasley paid $478,500 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $19,000 in accounts payable for legal and accounting fees.

Beasley also agreed to pay $77,400 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $21,000. In determining its offer, Beasley noted the following:

• Donovan holds a building with a fair value $35,400 more than its book value.
• Donovan has developed unpatented technology appraised at $33,900, although is it not recorded in its financial records.
• Donovan has a research and development activity in process with an appraised fair value of $51,700. The project has not yet reached technological feasibility.
• Book values for Donovan’s current assets and liabilities approximate fair values.

Problem 2-13 (LO 2-5, 2-8)

13. How much should Beasley record as total assets acquired in the Donovan merger?

Multiple Choice

• $478,500.

• $552,400.

• $499,500.

• $571,500.

Answer 1

13	Total Consideration paid in stock(fair value)	$478,500
	Add: Contigent consideration fair value	$21,000
	Total consideration	$499,500
	Hence, Beasey record as total assets aquired =	$499,500
Note -1	As per ASC 805, contigent consideration also forms part of total consideration. Hence, $21,000 added.
Note -2	As per ASC 805, any expense incurred during business combination should not be added to consideration paid.