Question

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

	Carrying Amount			Fair Value
Receivables	$	83,900		$	83,900
Inventory		74,600			74,600
Copyrights		150,500			586,500
Patented technology		890,000			691,000
Total assets	$	1,199,000		$	1,436,000
Current liabilities	$	178,000		$	178,000
Long-term liabilities		683,000			669,700
Common stock		100,000
Retained earnings		238,000
Total liabilities and equities	$	1,199,000

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 $120,000 to an investment banking firm.

The following information was also available:

• Zambrano further agreed to pay an extra $81,200 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 $40,600.
• Soriano has a research and development project in process with an appraised value of $245,000. 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) $767,900 & (b) $888,900. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Page No. When consideration $767,900 Date Fair value Receivable 83,900 Inventory 74,600 copyrights 586,500 6 91,000 Total Assete 1436,000 Patented Technology - Current liabilities I long term Liabilities = Met identifiable Assets 178 000 669700 588,300 Cash paid 767,900 40600 as consideration Add: contigent consideration fair value Total consideration Goodwill 808,500 220,200 (808500 - 588 300 1 Journal Entry Dr. cr. 83900 Recievable Inventory copyrights, Patent Technology To current liability To long-term liability 74600 586,500 691,000 220,200 Good will 178 Ovo To Cash To contigent consideration 669700 767,900 4o 600 ( Business acquired)

120.000 2 120,000 Professional fee - expenses. To cash. (paid to merchant 888 900 When consideration is Met identifiable Assets Consideration paid-in cash (+) Contigent consideration 588 300 888900 +40600 929500 3841,200 Good will 929 500 - 588 300 Cr. Copyright Journal Entry 83900 Recievable 74600 Inventory 586500 691 000 Patent technology 3841200 Goodwill To Current Liability To Long-term To cash To Contigent consideration (Business Acquired) 178 000 6 69700 888900 40600 120,000 Professional fee - expenses To Cash (paid to merchant banker 120 000