Question

Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $450,000 in cash and issued 104,000 shares of its own $1 par value common stock. On this date, Francisco's stock had a fair value of $12 per share. The combination is a statutory merger with Beltran subsequently dissolved as a legal corporation. Beltran's assets and liabilities are assigned to a new reporting unit. The following reports the fair values for the Beltran reporting unit for January 1, 2017, and December 31, 2018, along with their respective book values on December 31, 2018, Beltran Reporting Unit Receivables Inventory Patents Customer relationships Equipment (net) Goodwill Accounts payable Long-term liabilities Fair Values 1/1/12 $ 75,000 193,000 281,000 525,000 500,000 295,000 ? (121,000) (450,000) Fair Values 12/31/18 $ 50,000 225,000 305,000 600,000 480,000 240,000 > (175,000) (400,000) Book Values 12/31/18 $50,000 225,000 300,00 500,000 450,000 235,000 400,000 (175,000) (400,000) a. Prepare Francisco's journal entry to record the assets acquired and the liabilities assumed in the Beltran merger on January 1, 2017 b. FROM DR. WEBB- "INDEPENDENT OF PART A, IF THE PROBLEM ASKS YOU FOR GOODWILL IMPAIRMENT IN PART B, PUT THE NUMBER 300,000."

Answer 1

Answer:

Calculations and Entries for 31.12.2017

1.Total Stockholders Equity = Additional Paid in capital + Common Stock + Retained Earnings

= 50,000 + 250,000 + 100,000

= $ 400,000

2.Difference of Acquisition Price and Total Stockholders Equity = 490,000 - 400,000

= $ 90,000

3.Equipment Fair Value = 180,000 Book Value = 200,000

Difference = 180,000 - 200,000

= -20,000

4. Land Fair Value = 90,000 Book Value = 80,000

Difference = 90,000 - 80,000

= 10,000

5. Building Fair Value = 160,000 Book Value = 120,000

Difference = 160,000 - 120,000

= 40,000

6.  Excess of Fair Value over Book Value = 10,000 + 40,000 - 20,000

= 30,000

7. Goodwill = 90,000 - 30,000 = 60,000

8. Amortization of Equipment = -20,000/5 = -4,000

9. Amortization of Building = 40,000/4 = 10,000

10. Total Amortization = 10,000 - 4,000

= 6,000

11. Equity Income = Net Income - Amortization = 80,000 - 6,000 = 74,000

Journal Entries

Date	Account Title and Explanation	Debit $	Credit $
Dec.31, 2017	Common Stock-Abernethy	250,000
	Additional Paid in Capital	50,000
	Retained Earnings, 1/1/17	100,000
	Investment in Abernethy		400,000
	(To eliminate stockholders’ account of subsidiary)
Dec.31, 2017	Land	10,000
	Building	40,000
	Goodwill	60,000
	Equipment		20,000
	Investment in Abernethy		90,000
	(To recognize goodwill portion of the original acquisition fair value)
Dec.31, 2017	Equity in earnings of subsidiary	74,000
	Investment in Abernethy		74,000
	(To eliminate intercompany income accrual based on the parent’s usage of partial equity method)
Dec.31, 2017	Investment in Abernethy	10,000
	Dividends Paid		10,000
	(To eliminate intra-entity dividend transfers)
Dec.31, 2017	Depreciation expense	6,000
	Equipment	4,000
	Building		10,000
	(To record depreciation expense during the year)

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