Question
In: Accounting
On May 1, Donovan Company reported the following account balances: Current assets $ 90,000 Buildings &...
On May 1, Donovan Company reported the following account balances:
| Current assets | $ | 90,000 | ||
| Buildings & equipment (net) | 220,000 | |||
| Total assets | $ | 310,000 | ||
| Liabilities | $ | 60,000 | ||
| Common stock | 150,000 | |||
| Retained earnings | 100,000 | |||
| Total liabilities and equities | $ | 310,000 | ||
On May 1, Beasley paid $400,000 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $15,000 in accounts payable for legal and accounting fees.
Beasley also agreed to pay $75,000 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $20,000. In determining its offer, Beasley noted the following:
- Donovan holds a building with a fair value $30,000 more than its book value.
- Donovan has developed unpatented technology appraised at $25,000, although is it not recorded in its financial records.
- Donovan has a research and development activity in process with an appraised fair value of $45,000. The project has not yet reached technological feasibility.
- Book values for Donovan’s current assets and liabilities approximate fair values.
What should Beasley record as total liabilities incurred or assumed in connection with the Donovan merger?
Solutions
Expert Solution
Beasley should record the below liabilities in their books of account
1) Contingent liabilities should not form part of books of account, it should be recorded as a footnote disclosure, hence we no need to consider payment for $20,000 to formeer owner
2) Record $60,000 liabilities of Donovan in Beasley as a part of take over
3) Record $15,000 as a current liability for Legal fees
4) Expenses incurred for Research and development should be charged to statement of Profit and Loss account if the project got failed or not approved by consent authority - Write off $45,000
5) Purchase consideration of $400,000 to be reorded as a liability as a part of take over
6) All other assets and liabilities should be recorded at fair value and the net differnce between purchase consideration and net assets should be recorded as a Goodwill or Capital reserve
ekkarill92 answered 1 year agoRelated Solutions
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Accumulated Depreciation, Equipment
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Accounts Payable
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Inventory
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Wages Payable
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150,000
Long-Term Investment
80,000
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Prepare journal entries to record each of the above transactions
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In 2020, the following transactions occurred:
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year end, the company owed...
On May 1, Soriano Co. reported the following account balances along with their estimated fair values:...
On May 1, Soriano Co. reported the following account balances
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Fair Value
Receivables
$
152,400
$
152,400
Inventory
85,600
85,600
Copyrights
174,000
558,000
Patented technology
836,000
618,000
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Long-term liabilities
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Retained earnings
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Fair Value
Receivables
$
92,500
$
92,500
Inventory
84,000
84,000
Copyrights
172,500
537,500
Patented technology
906,000
739,000
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$
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Current liabilities
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$
205,000
Long-term liabilities
713,000
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Common stock
100,000
Retained earnings
237,000
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On May 1, Soriano Co. reported the following account balances along with their estimated fair values:...
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Inventory
89,600
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Copyrights
151,500
592,500
Patented technology
917,000
702,000
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$
1,548,000
Current liabilities
$
239,000
$
239,000
Long-term liabilities
741,000
724,000
Common stock
100,000
Retained earnings
242,000
Total liabilities and equities
$
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On that day, Zambrano paid cash to acquire all of the assets and
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On May 1, Soriano Co. reported the following account balances along with their estimated fair values:...
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along with their estimated fair values:
Carrying
Amount
Fair Value
Receivables
$
92,500
$
92,500
Inventory
84,000
84,000
Copyrights
172,500
537,500
Patented technology
906,000
739,000
Total assets
$
1,255,000
$
1,453,000
Current liabilities
$
205,000
$
205,000
Long-term liabilities
713,000
694,000
Common stock
100,000
Retained earnings
237,000
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Fair Value
Receivables
$
79,400
$
79,400
Inventory
90,600
90,600
Copyrights
133,000
556,000
Patented
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895,000
764,000
Total
assets
$
1,198,000
$
1,490,000
Current
liabilities
$
234,000
$
234,000
Long-term
liabilities
650,000
638,900
Common
stock
100,000
Retained
earnings
214,000
Total
liabilities and equities
$
1,198,000
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$
284,400
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Inventory
78,600
78,600
Copyrights
145,000
528,000
Patented technology
873,000
731,000
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$
1,381,000
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1,622,000
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$
257,000
$
257,000
Long-term liabilities
742,000
722,500
Common stock
100,000
Retained earnings
282,000
Total liabilities and equities
$
1,381,000
On that day, Zambrano paid cash to acquire all of the assets and
liabilities of Soriano, which...
On May 1, Soriano Co. reported the following account balances along with their estimated fair values:...
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Fair Value
Receivables
$
219,000
$
219,000
Inventory
92,000
92,000
Copyrights
152,000
533,000
Patented technology
832,000
677,000
Total assets
$
1,295,000
$
1,521,000
Current liabilities
$
256,000
$
256,000
Long-term liabilities
685,000
673,000
Common stock
100,000
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254,000
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$
1,295,000
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