Question

On June 30, 2021, Streeter Company reported the following account balances: Receivables Inventory Buildings (net) Equipment (net) Total assets $ 64,000 Current liabilities 94,000 Long-term liabilities 86,500 Common stock 31,000 Retained earnings $ 275,500 Total liabilities and equities $ (11,500) (74,000) (90,000) (100,000) $ (275,500) On June 30, 2021, Princeton Company paid $311,500 cash for all assets and liabilities of Streeter, which will cease to exist as a separate entity. In connection with the acquisition, Princeton paid $7,700 in legal fees. Princeton also agreed to pay $59,200 to the former owners of Streeter contingent on meeting certain revenue goals during 2022. Princeton estimated the present value of its probability adjusted expected payment for the contingency at $17,000. In determining its offer, Princeton noted the following pertaining to Streeter: • It holds a building with a fair value $42,100 more than its book value. • It has developed a customer list appraised at $21,000, although it is not recorded in its financial records. • It has research and development activity in process with an appraised fair value of $39,400. However, the project has not yet reached technological feasibility and the assets used in the activity have no alternative future use. • Book values for the receivables, inventory, equipment, and liabilities approximate fair values. Prepare Princeton's accounting entries to record the combination with Streeter. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Journal Entry 1 -

Account Titles	Debit	Credit
Receivables	$         64,000
Inventory	$         94,000
Buildings	$      128,600
Equipment	$         31,000
Customer List	$         21,000
Capitalised R & D	$         39,400
Goodwill	$         36,000
Current Liabilities		$         11,500
Long-term Liabilities		$         74,000
Contingent Performance Liability		$         17,000
Cash		$      311,500

.

Journal Entry 2 -

Account Titles	Debit	Credit
Combination Expenses	$           7,700
Cash		$           7,700

.

Working Notes -

Calculation of Goodwill :

Particulars	Amount ($)
Cash	$     311,500
Contingent Obligation Performance	$       17,000
Business Fair Value	$     328,500
Fair Value of Net Identifiable Assets	$     292,500
Goodwill	$       36,000

.

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