Question

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

	Carrying Amount			Fair Value
Receivables	$	284,400		$	284,400
Inventory		78,600			78,600
Copyrights		145,000			528,000
Patented technology		873,000			731,000
Total assets	$	1,381,000		$	1,622,000
Current liabilities	$	257,000		$	257,000
Long-term liabilities		742,000			722,500
Common stock		100,000
Retained earnings		282,000
Total liabilities and equities	$	1,381,000

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 $145,500 to an investment banking firm.

The following information was also available:

- Zambrano further agreed to pay an extra $84,800 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 $42,400.

- Soriano has a research and development project in process with an appraised value of $237,500. 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) $813,800 & (b) $923,600. (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 $813,800.

2) Record the expenses related to the combination. Assume its initial cash payment to the former owners was $813,800.

3) Record the acquisition of Soriano Co. Assume its initial cash payment to the former owner was $923,600.

4) Record the expenses related to the combination. Assume its initial cash payment to the former owner was $923,600.

Answer 1

a) Cash payment to the former owners was $813800

  

1. Receivables Dr. $284400

Inventory Dr. 78600

copyrights Dr.528000

Patented Technology Dr.731000

Research and Development Assets Dr. 237500

To Current liabilities 257000

To long term liabilities 722500

To cash 813800

To contingent performance liability 42400

To Gain on bargain purchase(Balancing figure) 23800

(Being record the acquisition)

2. Professional service expense Dr.$145500

To cash 145500

(Being acquisition expense recorded)

b) Cash payment to the former owners was $923600

1. Receivables Dr. $284400

Inventory Dr. 78600

copyrights Dr.528000

Patented Technology Dr.731000

Research and Development Assets Dr. 237500

Goodwill (Balancing figure) Dr.86000

To Current liabilities 257000

To long term liabilities 722500

To cash 923600

To contingent performance liability 42400

(Being record the acquisition)

2. Professional service expense Dr.$145500

To cash 145500

(Being acquisition expense recorded)