Question

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On May 1, Soriano Co. reported the following account balances along with their estimated fair values: Carrying Fair Value Amount Receivables 245,300 245,300 79,200 125,500 875,000 $1,325,000 Inventory Сopyrights Patented technology 79,200 505,500 658,000 Total assets 1,488,000 Current liabilities 253,000 740,000 100,000 232,000 253,000 729,800 Long-term liabilities Common stock Retained earnings Total liabilities and equities 1,325,000 On that day, Zambrano paid cash to acquire all of the assets and liabilities of Soriano, which will cease to exist as a separate entity. To facilitate the merger, Zambrano also paid $124,500 to an investment banking firm. The following information was also available: Zambrano further agreed to pay an extra $71,200 to the former owners of Soriano only if they meet certain revenue goals during the next two years. Zambrano estimated the present value of its probability adjusted expected payment for this contingency at $35,600 Soriano has a research and development project in process with an appraised value of $221,500. However, the project has not yet reached technological feasibility and the project's assets have no alternative future use. a&b. Prepare Zambrano's journal entries to record the Soriano acquisition assuming its initial cash payment to the former owners was (a) $670,000 & (b) $790,100. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Solution a) Initial cash payment to the owners = 670000 - cash paid = 670000 Contingent performance Leability = 35600 Consideration transfered = 670000 + 35600 705600 faly value of Net assets acquered = 1488000 - 253000 – 729800 + 221500 726700

Galn on bargain purchase = Consederation transfered - fair value of net assets acquired = 705600 - 726700 = 2110D acquisition and the Journal entry to record Soreano professional Service expense. particulares Debit Gedet Receivables 245300 79200 505500 658000 Inventory Copyright? patented technology Research he development asset Current Liabletier long term Leabiliticę 221500 253000 729800 cash 670000 35600 contingent performance Leability Gain on bargain repurchase 21100 experse 124500 Perafersional service Cash 124500

b) Initial cash payment to the owners = 790100 Cash paid = 790100 Contingent performance habilety = 35600 Consideration transfered - 790100 + 35600 - 825700 fair value of Net assets acquired = 1488000 - 25000 - 729800 + 221 SOO = 726 700 Goodwill = 825700 - 726700 - 99000 Journal entry to record s acquisition & professional service expense. particulars Debit Gredet Receevallez 245300 79200 505500 658000 P21500 Inventory copy right patent technology Research as development casset Спредлші Current Leabilities long term Leabletiez cash contingent performance hablety 99000 253000 729800 79010o 35600

particulars Debit bredet 124500 professional services experse cash 124500