Question

On May 1, Soriano Co. reported the following account balances along with their estimated fair values:

	Carrying Amount			Fair Value
Receivables	$	152,400		$	152,400
Inventory		85,600			85,600
Copyrights		174,000			558,000
Patented technology		836,000			618,000
Total assets	$	1,248,000		$	1,414,000
Current liabilities	$	188,000		$	188,000
Long-term liabilities		664,000			649,700
Common stock		100,000
Retained earnings		296,000
Total liabilities and equities	$	1,248,000

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 $113,000 to an investment banking firm.

The following information was also available:

• Zambrano further agreed to pay an extra $86,200 to the former owners of Soriano only if they meet certain revenue goals during the next two years. Zambrano estimated the present value of its probability adjusted expected payment for this contingency at $43,100.
• Soriano has a research and development project in process with an appraised value of $227,500. However, the project has not yet reached technological feasibility and the project’s assets have no alternative future use.

a&b. Prepare Zambrano’s journal entries to record the Soriano acquisition assuming its initial cash payment to the former owners was (a) $741,400 & (b) $861,500. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Zambrano’s journal entries to record the Soriano acquisition -

(a)	Calculation of goodwill -
		Fair Value
	Receivables	$        152,400
	Inventory	$          85,600
	Copyrights	$        558,000
	Patented technology	$        618,000
	Research and Development Asset	$ 227,500
	Total assets	$     1,641,500
	Current liabilities	$        188,000
	Long-term liabilities	$        649,700
	Net identifiable assets	$ 803,800
	Cash paid as consideration	$        741,400
	Add: Contingent consideration fair value	$          43,100
	Total consideration	$        784,500
	Gain on Bargain Purchase	$ 19,300
1	Journal entry	Debit	Credit
	Receivables	$        152,400
	Inventory	$          85,600
	Copyrights	$        558,000
	Patented technology	$        618,000
	Research and Development Asset	$        227,500
	Current liability		$      188,000
	Long-term liabilities		$      649,700
	Cash		$      741,400
	Contingent consideration		$        43,100
	Gain on Bargain Purchase		$ 19,300
	(Business acquired)
2	Professional fees -expense	$        113,000
	Cash		$      113,000
	(paid to merchant bankers)
(b)	Calculation of goodwill -
	Net identifiable assets	$ 803,800
	Consideration paid in cash	$        861,500
	Add: Contingent consideration	$          43,100
	Goodwill	$ 100,800
1	Journal entry	Debit	Credit
	Receivables	$        152,400
	Inventory	$          85,600
	Copyrights	$        558,000
	Patented technology	$        618,000
	Research and Development Asset	$ 227,500
	Goodwill	$ 100,800
	Current liability		$      188,000
	Long-term liabilities		$      649,700
	Cash		$      861,500
	Contingent consideration		$        43,100
	(Business acquired)
2	Professional fees -expense	$        113,000
	Cash		$      113,000
	(paid to merchant bankers)

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