Question

On May 1, Soriano Co. reported the following account balances along with their estimated fair values:

	Carrying Amount			Fair Value
Receivables	$	144,100		$	144,100
Inventory		77,400			77,400
Copyrights		135,500			509,500
Patented technology		901,000			744,000
Total assets	$	1,258,000		$	1,475,000
Current liabilities	$	235,000		$	235,000
Long-term liabilities		686,000			671,300
Common stock		100,000
Retained earnings		237,000
Total liabilities and equities	$	1,258,000

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 $133,500 to an investment banking firm.

The following information was also available:

• Zambrano further agreed to pay an extra $87,600 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 $43,800.
• Soriano has a research and development project in process with an appraised value of $236,000. 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) $745,000 & (b) $848,700. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $745,000.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

• Record the expenses related to the combination. Assume its initial cash payment to the former owners was $745,000.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 2

• Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $848,700.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 3

• Record the expenses related to the combination. Assume its initial cash payment to the former owners was $848,700.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 4

Answer 1

		Fair Value
	Receivables	144,100
	Inventory	77,400
	Copyrights	509,500
	Patented technology	744,000
	Total assets	1,475,000
	Current liabilities	235,000
	Long-term liabilities	671,300
	Net identifiable assets	568,700
	Cash paid as consideration	$745,000
	Add: contigent consideration fair value	$43,800
	Total consideration	$788,800
	Goodwill	$220,100	(788,800-568,700)
	When technical feasibility of the intangible assets can not be established, intangible assets are not recognised)
1	Journal entry	Debit	Credit
	Receivables	$144,100
	Inventory	$77,400
	Copyrights	$509,500
	Patented technology	$744,000
	Goodwill	$220,100
	Current liability		$235,000
	Long-term liabilities		$671,300
	Cash		$745,000
	Contigent consideration		$43,800
	(Business aquired)
2	Professsional fees -expense	$133,500
	Cash		$133,500
	(paid to merchant bankers)
	Net identifiable assets	$568,700
	Consideration paid in cash	$848,700
	Add: contingent consideration	$43,800
	Goodwill	$323,800
1	Journal entry	Debit	Credit
	Receivables	$144,100
	Inventory	$77,400
	Copyrights	$509,500
	Patented technology	$744,000
	Goodwill	$323,800
	Current liability		$235,000
	Long-term liabilities		$671,300
	Cash		$848,700
	Contigent consideration		$43,800
	(Business aquired)
2	Professsional fees -expense	133500
	Cash		133500
	(paid to merchant bankers)

\

*If you have any doubts please let me know in the comment section. Please give your valuable feedback.