Question

Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $795,250 in cash and issued 108,000 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, 2017, and December 31, 2018, along with their respective book values on December 31, 2018.

Beltran Reporting Unit	Fair Values 1/1/17			Fair Values 12/31/18			Book Values 12/31/18
Cash	$	122,500		$	93,500		$	93,500
Receivables		296,750			351,000			351,000
Inventory		302,000			336,000			325,900
Patents		623,000			720,000			581,500
Customer relationships		621,500			592,000			546,000
Equipment (net)		329,500			273,000			267,050
Goodwill		?			?			586,000
Accounts payable		(105,500	)		(186,000	)		(186,000	)
Long-term liabilities		(684,500	)		(588,000	)		(588,000	)
a. Prepare Francisco’s journal entry to record the assets acquired and the liabilities assumed in the Beltran merger on January 1, 2017. No Date General Journal Debit Credit b. On December 31, 2018, Francisco opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire Beltran reporting unit is $1,728,750. What amount of goodwill impairment, if any, should Francisco recognize on its 2018 income statement?

Goodwill impairment Loss $??

Answer 1

a)
Date	General Journal	Debit	Credit
Jan.1 2017	Cash	$122,500.00
	Receivables	$296,750.00
	Inventory	$302,000.00
	Patents	$623,000.00
	Customer relationships	$621,500.00
	Equipment (net)	$329,500.00
	Goodwill (balancing figure)	$586,000.00
	Accounts payable		$105,500.00
	Long-term liabilities		$684,500.00
	Cash		$795,250.00
	Common stock (Francisco Co., par value)		$108,000.00
	Additional paid-in capital (108,000 x $11)		$1,188,000.00
b)
Step one in quantitative goodwill impairment test:
Fair value of reporting unit as a whole (GIVEN)	$1,728,750.00
Book value of reporting unit's net assets	$1,976,950.00
a potential goodwill impairment loss exists as the total fair value of the reporting unit is less than its carrying value.
Fair value of reporting unit as a whole (GIVEN)	$1,728,750.00
Fair values of reporting unit's net assets (excluding goodwill)(31st dec)	$1,591,500.00
Implied fair value of goodwill	$137,250.00
Book value of Goodwill	$586,000.00
Goodwill impairment loss	$448,750.00