Question

Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $198.000 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso's stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire's assets and liabilities are assigned to a new reporting unit. The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021 Pair Values Carrying Amounts Bellire Reporting Unit 1/1/20 12/31/21 Cash 65,000 $ 40,000 Receivables 203,000 235,000 Inventory 275,000 250,000 Patents 531,000 550,000 Customer relationships 580,000 450,000 Equipment (net) 215,000 335,000 Goodwill 400,000 Accounts payable (111,000) (275,000) Long-term liabilities (460,000) (425,000) $ 2 Note: Parentheses indicate a credit balance. a. Prepare Alfonso's journal entry to record the assets acquired and the liabilities assumed in the BelAire merger on January 1, 2020. Note: Enter cash paid and cash received as two separate amounts. b. On December 31, 2021, Alfonso opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire BelAire reporting unit is $1,325,000. What amount of goodwill impairment, if any, should Alfonso recognize on its 2021 income statement?

Answer 1

Page No ① Answer: a) Journal entay- Cash paid = $198000 faiz Value of shares issued = 100000 x 15 = $1500000 consideration transfeaed = 198000 + 1500 000 169 8000 Faids Value of net assets riequided 12 65000 + 203000 275000 + 531000 + 580000 + 215000 Il 1 000 - 460,000 = 1298000 Good will 1698000 - 1298000 C 400000

Nola Journal Entory to second acquisition entuny:- Page No Account title Debit credit cash $65000 Receivable $203000 $275000 $531000 Inventory patents customer gelationship Equipment (net) $580 000 $215ooo Good will $400 000 To accounts payable $111000 To longterm liabilities $460000 To cash $198.000 To common stock $100 000 (face value) To additional paid in Capital $1400000 ® Good will impaisiment loss: fais value of reporting unit as a whole $ 1325 000

Page No 3 faion value of dreporting units net assets 40.000 +235 000 + 250000 + 550000 +L50 000 +335000 -275 000 -425000 1160 000 Impained fair value of Good will 1325000 - 1160000 165 000 Good will 400000 Good coils impaugment lose lose = 165000 400 000 +($ 235000) : Good will imparement lose = ($ 235000