Question

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.

Answer 1

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)