Question

Allerton Company acquires all of Deluxe Company’s assets and liabilities for cash on January 1, 2015, and subsequently formally dissolves Deluxe. At the acquisition date, the following book and fair values were available for the Deluxe Company accounts:

  

	Book Values		Fair Values
Current assets	$	46,750	$	46,750
Building		100,750		57,850
Land		15,750		35,350
Trademark		0		38,000
Goodwill		23,000		?
Liabilities		(51,250)		(51,250)
Common stock		(100,000)
Retained earnings		(35,000)

  

Prepare Allerton’s entry to record its acquisition of Deluxe in its accounting records assuming the following cash exchange amounts: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

  

(1)	$165,500.

        

(2)	$102,500.

     

Answer 1

Ans:

1. Fair value of consideration transferred = 165,500

Fair value of net identifiable assets= (46,750+57,850+35,350+38,000-51,250)

=$126,700

Excess to goodwill= 38,800

Journal Entry

Account title and explanation	Debit($)	Credit($)
Current Assets	46,750
Land	35,350
Building	57,850
Trademark	38,000
Goodwill	38,800
Liabilities		51,250
Cash		165,500
( to record journal entry)

2. Fair value of consideration transferred = 102,500

Fair value of net identifiable assets=126,700

Gain on bargain purchase= 24,200

Account title and explanation	Debit($)	Credit($)
Current Assets	46,750
Building	57,850
Land	35,350
Trademark	38,000
Gain on bargain purchase		24,200
Liabilities		51,250
Cash		102,500
( to record the journal entry)