Question

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

	Carrying Amount			Fair Value
Receivables	$	79,400		$	79,400
Inventory		90,600			90,600
Copyrights		133,000			556,000
Patented technology		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

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 $107,500 to an investment banking firm.

The following information was also available:

• Zambrano further agreed to pay an extra $79,000 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 $39,500.
• Soriano has a research and development project in process with an appraised value of $248,500. 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) $802,000 & (b) $928,500. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $802,000.

2. Record the expenses related to the combination. Assume its initial cash payment to the former owners was $802,000.\

3. Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $928,500. \

4. Record the expenses related to the combination. Assume its initial cash payment to the former owners was $928,500.

Answer 1

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	Initial Cash payment $802,000
	Cash paid			$     802,000
	Contingent performance liability			$       39,500
	Consideration transferred			$     841,500
	Fair values of net assets acquired	$1,490,000-$234,000-$638,900+$248,500		$     865,600
	Gain on bargain purchase			$       24,100
1	Receivables	$                                                                          79,400
	Inventory	$                                                                          90,600
	Copyrights	$                                                                        556,000
	Patented Technology	$                                                                        764,000
	Research and Development Asset	$                                                                        248,500
	Contingent Performance Liability		$      39,500
	Current liabilities		$   234,000
	Long-Term Liabilities		$   638,900
	Cash		$   802,000
	Gain on Bargain Purchase		$      24,100
2	Professional Services Expense	$                                                                        107,500
	Cash		$   107,500
	Initial Cash payment $928,500
	Cash paid			$     928,500
	Contingent performance liability			$       39,500
	Consideration transferred			$     968,000
	Fair values of net assets acquired	$1,490,000-$234,000-$638,900+$248,500		$     865,600
	Goodwill			$     102,400
1	Receivables	$                                                                          79,400
	Inventory	$                                                                          90,600
	Copyrights	$                                                                        556,000
	Patented Technology	$                                                                        764,000
	Research and Development Asset	$                                                                        248,500
	Goodwill	$                                                                        102,400
	Current Liabilities		$   234,000
	Long-Term Liabilities		$   638,900
	Cash		$   928,500
	Contingent Performance Liability		$      39,500
2	Professional Services Expense	$                                                                        107,500
	Cash		$   107,500