Question

On May 1, Soriano Co. reported the following account balances along with their estimated fair values: Receivables Inventory Copyrights Patented technology Total aseta Current liabilities Long-term liabilities Common stock Retained earnings Total liabilities and equition Carrying Amount Fair Value $ 163,900 $ 163,900 89,600 89,600 151,500 592,500 917,000 702,000 $ 1,322,000 $1,548,000 $ 239,000 $ 239,000 741,000 724,000 100,000 242,000 $ 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.

Answer 1

Answer.

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

Working Note:

Fair value of total assets	$1,548,000
Add: Research and development	229,500
Less: Current liabilities	239,000
Less: Long-term liabilities	724,000
Net identifiable assets		$814,500
Cash paid as consideration	755,000
Add: contingent consideration present value	39,900
Total consideration		794,900
Gain on bargain purchase		$19,600

Journal Entry:

Transaction	General Journal	Debit	Credit
1	Receivables	163,900
	Inventory	89,600
	Copyrights	592,500
	Patented Technology	702,000
	Research and development	229,500
	Current Liabilities		239,000
	Long-term liabilities		724,000
	Cash		755,000
	Contingent Liability		39,900
	Gain on bargain purchase		19,600
	(To record acquisition of net assets of Soriano)
2	Professional fees	124,000
	Cash		124,000
	(To record payment of professional charges)

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	124,000
	Cash		124,000
	(To record payment of professional charges)