1.
When the Cash Amount Paid to Former Owners is $674,100
The journal entry is prepared as below:
Transaction | General Journal | Debit | Credit |
1 | Current Assets | $68,400 | |
Equipment | $226,000 | ||
Trademark | $339,000 | ||
Goodwill | $140,800 | ||
Liabilities | $71,400 | ||
Cash (674,100 + 28,700) | $702,800 |
______
Notes:
The value of goodwill is calculated as below:
Goodwill = (Cash Amount + Acquisition Costs) - (Fair Value of Net Assets Acquired) = (674,100 + 28,700) - (68,400 + 226,000 + 339,000 - 71,400) = $140,800
______
2.
When the Cash Amount Paid to Former Owners is $444,100
The journal entry is prepared as below:
Transaction | General Journal | Debit | Credit |
1 | Current Assets | $68,400 | |
Equipment (226,000 - 35,680) | $190,320 | ||
Trademark (339,000 - 53,520) | $285,480 | ||
Liabilities | $71,400 | ||
Cash (425,100 + 28,700) | $453,800 |
______
Notes:
The value of bargain purchase is calculated as below:
Bargain Purchase = (Cash Amount + Acquisition Costs) - (Fair Value of Net Assets Acquired) = (444,100 + 28,700) - (68,400 + 226,000 + 339,000 - 71,400) = -$89,200
The amount of bargain purchase is allocated to long term assets as follows:
Asset | Fair Value | Weight (A) | Total Amount of Reduction (B) | Asset Reduction (A*B) |
Equipment | 226,000 | 40% [226,000/(226,000+339,000)*100] | 89,200 | $35,680 |
Trademark | 339,000 | 60% [339,000/(226,000+339,000)*100] | 89,200 | $53,520 |
______
3 and 4.
When the Cash Amount Paid to Former Owners is $674,100
The journal entries are prepared as below:
Transaction | General Journal | Debit | Credit |
1 | Current Assets | $68,400 | |
Equipment | $226,000 | ||
Trademark | $339,000 | ||
Goodwill | $112,100 | ||
Liabilities | $71,400 | ||
Cash | $674,100 | ||
2 | Professional Service Expense | $28,700 | |
Cash | $28,700 |
______
Notes:
The value of goodwill is calculated as below:
Goodwill = Consideration Transferred - (Fair Value of Net Assets Acquired) = 674,100 - (68,400 + 226,000 + 339,000 - 71,400) = $112,100
______
5 and 6.
When the Cash Amount Paid to Former Owners is $444,100
The journal entries are prepared as below:
Transaction | General Journal | Debit | Credit |
1 | Current Assets | $68,400 | |
Equipment | $226,000 | ||
Trademark | $339,000 | ||
Gain on Bargain Purchase | $117,900 | ||
Liabilities | $71,400 | ||
Cash | $444,100 | ||
2 | Professional Service Expense | $28,700 | |
Cash | $28,700 |
______
Notes:
The amount of gain on bargain purchase is arrived as follows:
Gain on Bargain Purchase = Consideration Transferred - (Fair Value of Net Assets Acquired) = 444,100 - (68,400 + 226,000 + 339,000 - 71,400) = -$117,900
Problem 2-35 (LO 2-9) In a pre-2009 business combination, Acme Company acquired all of Brem Company's...
In a pre-2009 business combination, Acme Company acquired all of Brem Company’s assets and liabilities for cash. After the combination Acme formally dissolved Brem. At the acquisition date, the following book and fair values were available for the Brem Company accounts: Book Values Fair Values Current assets $ 81,800 $ 81,800 Equipment 131,000 198,000 Trademark 0 352,000 Liabilities (67,800 ) (67,800 ) Common stock (100,000 ) Retained earnings (45,000 ) In addition, Acme paid an investment bank $31,200 cash for...
In a pre-2009 business combination, Acme Company acquired all of Brem Company’s assets and liabilities for cash. After the combination Acme formally dissolved Brem. At the acquisition date, the following book and fair values were available for the Brem Company accounts: Book Values Fair Values Current assets $ 81,800 $ 81,800 Equipment 131,000 198,000 Trademark (0) 352,000 Liabilities (67,800 ) (67,800 ) Common stock (100,000 ) (0) Retained earnings (45,000 ) (0) In addition, Acme paid an investment bank $31,200...
In a pre-2009 business combination, Acme Company acquired all of Brem Company’s assets and liabilities for cash. After the combination Acme formally dissolved Brem. At the acquisition date, the following book and fair values were available for the Brem Company accounts: Book Values Fair Values Current assets $ 56,800 $ 56,800 Equipment 157,000 220,000 Trademark 0 330,000 Liabilities (68,800 ) (68,800 ) Common stock (100,000 ) Retained earnings (45,000 ) In addition, Acme paid an investment bank $28,100 cash for...
In a pre-2009 business combination, Acme Company acquired all of Brem Company’s assets and liabilities for cash. After the combination Acme formally dissolved Brem. At the acquisition date, the following book and fair values were available for the Brem Company accounts: Book Values Fair Values Current assets $ 63,200 $ 63,200 Equipment 150,000 216,000 Trademark 0 324,000 Liabilities (68,200 ) (68,200 ) Common stock (100,000 ) Retained earnings (45,000 ) In addition, Acme paid an investment bank $32,100 cash for...
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