Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2012. In exchange, Francisco paid $450,000 in cash and issued 104,000 shares of its own $1 par value common stock. On this date, Francisco’s stock had a fair value of $12 per share. The combination is a statutory merger with Beltran subsequently dissolved as a legal corporation. Beltran’s assets and liabilities are assigned to a new reporting unit.
The following reports the fair values for the Beltran reporting unit for January 1,2012, and December 31,2013, along with their respective book values on December 31,2013.
Beltran Reporting Unit | Fair Values 12/31/13 | Fair Values 12/31/13 | Book Values 12/31/13 |
Cash | $ 75,000 | $ 50,000 | $ 50,000 |
Receivables | 193,000 | 225,000 | 225,000 |
Inventory | 281,000 | 305,000 | 300,000 |
Patents | 525,000 | 600,000 | 500,000 |
Customer relationships | 500,000 | 480,000 | 450,000 |
Equipment (net) | 295,000 | 240,000 | 235,000 |
Goodwill | ? | ? | 400,000 |
Accounts payable | (121,000) | (175,000) | (175,000) |
Long-term liabilities | (450,000) | (400,000) | (400,000) |
a. Prepare Francisco’s journal entry to record the assets acquired and the liabilities assumed in the Beltran merger on January 1,2012.
b. On December 31, 2013, Francisco opts to forego any goodwill impairment qualitative assessment and estimates that the total fair value of the entire Beltran reporting unit is $1,425,000. What amount of goodwill impairment, if any, should Francisco recognize on its 2013 income statement?
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