Question

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

	Carrying Amount			Fair Value
Receivables	$	163,900		$	163,900
Inventory		89,600			89,600
Copyrights		151,500			592,500
Patented technology		917,000			702,000
Total assets	$	1,322,000		$	1,548,000
Current liabilities	$	239,000		$	239,000
Long-term liabilities		741,000			724,000
Common stock		100,000
Retained earnings		242,000
Total liabilities and equities	$	1,322,000

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 $124,000 to an investment banking firm.

The following information was also available:

• Zambrano further agreed to pay an extra $79,800 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 $39,900.
• Soriano has a research and development project in process with an appraised value of $229,500. 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) $755,000 & (b) $875,200. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $755,000.

Record the expenses related to the combination. Assume its initial cash payment to the former owners was $755,000.

Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $875,200.

Record the expenses related to the combination. Assume its initial cash payment to the former owners was $875,200.

Answer 1

$1,548,000 229,500 239,000 724,000 $814,500 755,000 39,900 794,900 $19,600 Debit Credit Working Note: Fair value of total assets Add: Research and development Less: Current liabilities Less: Long-term liabilities Net identifiable assets Cash paid as consideration Add: contingent consideration present value Total consideration Gain on bargain purchase Journal Entry: Transaction General Journal 1 Receivables Inventory Copyrights Patented Technology Research and development Current Liabilities Long-term liabilities Cash Contingent Liability Gain on bargain purchase (To record acquisition of net assets of Soriano) 163,900 89,600 592,500 702,000 229,500 239,000 724,000 755,000 39,900 19,600 2 Professional fees Cash (To record payment of professional charges) 124,000 124,000

Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $875,200. Working Note: Net identifiable assets $814,500 Less: Cash paid as consideration 875,200 Less: Contingent consideration present value 39,900 Goodwill $100,600 Journal Entry: Transaction General Journal Debit Credit 3 Receivables 163,900 Inventory 89,600 Copyrights 592,500 Patented Technology 702,000 Research and development 229,500 Goodwill 100,600 Current Liabilities 239,000 Long-term liabilities 724,000 Cash 875,200 Contingent Liability 39,900 (To record acquisition of net assets of Soriano) 4 Professional fees Cash (To record payment of professional charges) 124,000 124,000