Question

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On May 1, Donovan Company reported the following account balances:

Current assets	$	98,500
Buildings & equipment (net)		250,000
Total assets	$	348,500
Liabilities	$	78,500
Common stock		150,000
Retained earnings		120,000
Total liabilities and equities	$	348,500

On May 1, Beasley paid $431,100 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $24,100 in accounts payable for legal and accounting fees.

Beasley also agreed to pay $84,700 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $25,800. In determining its offer, Beasley noted the following:

• Donovan holds a building with a fair value $32,200 more than its book value.
• Donovan has developed unpatented technology appraised at $24,100, although is it not recorded in its financial records.
• Donovan has a research and development activity in process with an appraised fair value of $47,600. The project has not yet reached technological feasibility.
• Book values for Donovan’s current assets and liabilities approximate fair value

Answer 1

What should Beasley (B) record as total liabilities incurred or assumed in connection with the Donovan (D) merger?

Answer:-

During the acquisition when dissolution takes place. the acquiring company transfers the fair value of the consideration to the former owners. and count assets acquired and liabilities assumes individually.

Company B bought $431,100 in stock at fair vale for all the assets and liabilities of Company D. Company D will no longer exist as separate firm as it will be part of Company B.

To calculate the total liabilities acquired for the merger of company D needs to calculate legal and accounting fees accounts payable, contingent liability and Company D's liabilities assumed.

Calculate the legal and accounting fees accounts payable, contingent liability and liabilities assumed.

$24,100 +$25,800 + $78,500 = $128,400.