Question

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

	Carrying Amount			Fair Value
Receivables	$	219,000		$	219,000
Inventory		92,000			92,000
Copyrights		152,000			533,000
Patented technology		832,000			677,000
Total assets	$	1,295,000		$	1,521,000
Current liabilities	$	256,000		$	256,000
Long-term liabilities		685,000			673,000
Common stock		100,000
Retained earnings		254,000
Total liabilities and equities	$	1,295,000

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 $101,500 to an investment banking firm.

The following information was also available:

• Zambrano further agreed to pay an extra $81,400 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 $40,700.
• Soriano has a research and development project in process with an appraised value of $210,500. 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) $743,800 & (b) $862,800. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1