Question

In: Accounting

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 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

Total liabilities and equities $

1,255,000

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 $135,000 to an investment banking firm.

The following information was also available:

  • Zambrano further agreed to pay an extra $86,400 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 $43,200.
  • Soriano has a research and development project in process with an appraised value of $237,000. 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) $725,800 & (b) $840,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

  • Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $725,800.
  • Record the expenses related to the combination. Assume its initial cash payment to the former owners was $725,800.
  • Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $840,000.
  • Record the expenses related to the combination. Assume its initial cash payment to the former owners was $840,000.

Solutions

Expert Solution

a&b. Prepare Zambrano’s journal entries to record the Soriano acquisition assuming its initial cash payment to the former owners was (a) $725,800 & (b) $840,000

(a) $725,800


Fair Value

Receivables

92500

Inventory

84000

Copyrights

537500

Patented technology

739000

Total assets

1453000

Current liabilities

205,000

Long-term liabilities

694000

Net identifiable assets

554000

Cash paid as consideration

$725,000

Add: contigent consideration fair value

$43,200

Total consideration

$768200

Goodwill

$214200

(768200-554000)

When technical feasibility of the intangible assets can not be established, intangible assets are not recognised)

.

  • Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $725,800.

No.

General Journal

Debit

Credit

1

Receivables

92500

Inventory

84000

Copyrights

537500

Patented technology

739000

Goodwill

214200

Current liabilities

205,000

Long-term liabilities

694000

Cash

725,000

Contingent consideration

43,200

(Business acquired)

.

· Record the expenses related to the combination. Assume its initial cash payment to the former owners was $725,800.

.


Tr no.

General Journal

Debit

Credit

Professional fees -expense

135000

   Cash

135000

(paid to merchant bankers)

.

·

. (b) $840,000

Net identifiable assets

554000

Cash paid as consideration

$840000

Add: contigent consideration fair value

$43,200

Total consideration

$883200

Goodwill

$329200

(883200-554000)

.Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $840,000.

General Journal

Debit

Credit

Receivables

92500

Inventory

84000

Copyrights

537500

Patented technology

739000

Goodwill

329200

    Current liability

205,000

    Long-term liabilities

694000

    Cash

840000

    Contigent consideration

43,200

(Business aquired

· Record the expenses related to the combination. Assume its initial cash payment to the former owners was $840,000.

.

General Journal

Debit

Credit

Professional fees -expense

135000

   Cash

135000

(paid to merchant bankers)


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