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In: Accounting

Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020....

Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $459,500 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso’s stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire’s assets and liabilities are assigned to a new reporting unit.

The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021.

BelAire Reporting Unit Fair Values
1/1/20
Carrying Amounts
12/31/21
Cash $ 101,000 $ 52,000
Receivables 212,250 247,000
Inventory 230,000 262,000
Patents 436,000 512,000
Customer relationships 650,750 608,000
Equipment (net) 403,500 302,000
Goodwill ? 568,000
Accounts payable (113,500 ) (201,000 )
Long-term liabilities (528,500 ) (470,000 )

Note: Parentheses indicate a credit balance.

  1. Prepare Alfonso’s journal entry to record the assets acquired and the liabilities assumed in the BelAire merger on January 1, 2020. Note: Enter cash paid and cash received as two separate amounts.

  2. On December 31, 2021, Alfonso opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire BelAire reporting unit is $1,740,000. What amount of goodwill impairment, if any, should Alfonso recognize on its 2021 income statement?

Solutions

Expert Solution

a.) Date Account Tiltes & Explanation Debit $ Credit $
January 1,2020 Cash 101,000
Receivables 212,250
Inventory 230,000
Patents 436,000
Customer relationships 650,750
Equipment (net) 403,500
Goodwill 568,000
Accounts payable    113,500
Long-term liabilities    528,500
Cash    459,500
Common Stock ( 100,000 x 1 )    100,000
Paid in capital in excess of par- Common Stock 1,400,000
(100,000 x 14 )
(To record the assets acquired and the liabilities )
b.) Net identifiable Assets on Dec.31,2021
Amount in $
Cash           52,000
Receivables        247,000
Inventory        262,000
Patents        512,000
Customer relationships        608,000
Equipment (net)        302,000
Accounts payable      -2,01,000
Long-term liabilities      -4,70,000
Net identifiable Assets on Dec.31,2021     1,312,000
Amount in $
Fair Value of entire Belaire reporting      1,740,000
Less: Net identifiable assets      1,312,000
Implied Goodwill       428,000
Amount in $
Existing goodwill        568,000
Less: Implied Goodwill        428,000
Amount of goodwill impairment       140,000
Goodwill impairment on its 2021 Income statement will be $ 140,000.

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