On May 1, Soriano Co. reported the following account balances along with their estimated fair values:
Carrying Amount | Fair Value | ||||||
Receivables | $ |
133,500 |
$ |
133,500 |
|||
Inventory |
77,000 |
77,000 |
|||||
Copyrights |
154,500 |
530,500 |
|||||
Patented technology |
911,000 |
737,000 |
|||||
Total assets | $ |
1,276,000 |
$ |
1,478,000 |
|||
Current liabilities | $ |
190,000 |
$ |
190,000 |
|||
Long-term liabilities |
756,000 |
738,200 |
|||||
Common stock |
100,000 |
||||||
Retained earnings |
230,000 |
||||||
Total liabilities and equities | $ |
1,276,000 |
|||||
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 $131,000 to an investment banking firm.
The following information was also available:
a&b. Prepare Zambrano’s journal entries to record the Soriano acquisition assuming its initial cash payment to the former owners was (a) $689,400 & (b) $806,200. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Fair Value | ||||
Receivables | 133,500 | |||
Inventory | 77,000 | |||
Copyrights | 530,500 | |||
Patented technology | 737,000 | |||
Total assets | 1,478,000 | |||
Current liabilities | 190,000 | |||
Long-term liabilities | 738,200 | |||
Net identifiable assets | 549,800 | |||
(a) | Cash paid as consideration | $689,400 | ||
Add: contigent consideration fair value | $42,200 | |||
Total consideration | $731,600 | |||
Goodwill | $181,800 | 731600-549800 | ||
When technical feasibility of the intangible assets can not be established, intangible assets are not recognised) | ||||
1 | Journal entry | Debit | Credit | |
Receivables | $133,500 | |||
Inventory | $77,000 | |||
Copyrights | $530,500 | |||
Patented technology | $737,000 | |||
Goodwill | $181,800 | |||
Current liability | $190,000 | |||
Long-term liabilities | $738,200 | |||
Cash | $689,400 | |||
Contigent consideration | $42,200 | |||
(Business aquired) | ||||
2 | Professsional fees -expense | $131,000 | ||
Cash | $131,000 | |||
(paid to merchant bankers) | ||||
Net identifiable assets | $549,800 | |||
Consideration paid in cash | $806,200 | |||
Add: contingent consideration | $42,200 | |||
Goodwill | $298,600 | |||
1 | Journal entry | Debit | Credit | |
Receivables | $133,500 | |||
Inventory | $77,000 | |||
Copyrights | $530,500 | |||
Patented technology | $737,000 | |||
Goodwill | $298,600 | |||
Current liability | $190,000 | |||
Long-term liabilities | $738,200 | |||
Cash | $806,200 | |||
Contigent consideration | $42,200 | |||
(Business aquired) | ||||
2 | Professsional fees -expense | $131,000 | ||
Cash | $131,000 | |||
(paid to merchant bankers) | ||||
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