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Powell Corporation paid $15 million in cash to acquire the assets and liabilities of Sloan Company....

Powell Corporation paid $15 million in cash to acquire the assets and liabilities of Sloan Company. Powell also agreed to make an additional cash payment in the future, with an expected present value of $600,000, if certain performance targets are met. Powell paid legal and consulting fees of $300,000 in cash in connection with the merger. A comparison of book and fair values of Sloan’s reported assets and liabilities follows:

(in thousands)

Book Value Fair Value

Current assets $ 600 $ 450

Property and equipment, net 5,000 2,000

Patents and trademarks 200 1,800

Current liabilities(400) (400)

Long-term debt (3,000) (3,200)

Net assets $2,400 $ 650

Sloan also has previously unreported developed technology, valued at $1.2 million, meeting ASC Topic 805 criteria for capitalization.

Required

a) What is the acquisition cost for this transaction?

b) Prepare the journal entry or entries made by Powell to record the business combination as a merger.

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Answer #1

the cost of acquisition is net assets i.e $650

                                                       journal entries

realisation A/C                                            Dr. $600

            To, Current Assets A/C                                             $600

Realisation A/C                                            Dr. $5000

             To Property And Equipments A/c                              $5000

Realisation A/C                                            Dr.$200

             To Patents and Trademarks A/C                                 $200

Current Liabilities A/C                                    Dr.$400

             To Realisation A/C                                                    $400

Long term debt A/C                                        Dr.$3000

             To Realisation A/C                                                    $3000

Bank A/C                                                      Dr.$4250

              To Realisaton A/C                                                   $4250

Realisation A/C                                             Dr.$3600

               To Bank A/C                                                          $3600

Capital A/C                                                   Dr $1750

               To Realisation A/C                                                  $1750

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