Question

1. Bestvalue Airlines’ June 1, 2020 balance sheet is as follows (in thousands):

Assets		Liabilities & Equity
Cash	$ 1,400	Current liabilities	$ 3,200
Receivables	650	Long-term debt	5,000
Investments	1,000	Common stock, $0.01 par	1
Maintenance supplies	150	Additional paid-in capital	5,500
Flight equipment (net of $2,000 accumulated depreciation)	8,500	Retained earnings (deficit)	(2,300)
International routes	700	Accumulated other comprehensive income	1,999
	______	Treasury stock	(1,000)
Total assets	$12,400	Total liabilities & equity	$12,400

Safebuy Airlines acquired Bestvalue on June 1, 2020, in an acquisition reported as a merger. Bestvalue’s cash, receivables, investments, and current liabilities were reported at fair value. Its maintenance supplies had a fair value of $200,000, flight equipment had a fair value of $10 million, and international routes were worth $400,000. Long-term debt had a fair value of $5.1 million. Bestvalue also had an unrecorded intangible, representing leases with favorable terms, worth $600,000, which meets ASC 805 criteria for separate capitalization. Safebuy paid $12 million in cash for Bestvalue.

Required

Present Safebuy’s journal entry to record the acquisition. Express all dollar amounts in thousands.

Answer 1

Prepare Safebuy’s journal entry to record the acquisition as follows:

Amount (in thousands) Accounts Titles Debit Credit Cash $1,400 Receivables Investments Maintenance supplies Flight equipment International routes Leases Goodwill (balancing figure) $650 $1,000 $200 $10,000 $400 $600 $6,050 Current liabilities $3,200 $5,100 Long-term debt (fair value) Cash $12,000