Question

Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $657,500 in cash and issued 110,000 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	$	107,000		$	76,000		$	76,000
Receivables		281,750			316,500			316,500
Inventory		378,500			426,000			415,200
Patents		535,500			622,000			491,500
Customer relationships		660,750			630,000			583,250
Equipment (net)		374,500			308,000			300,050
Goodwill		?			?			416,000
Accounts payable		(136,000	)		(198,000	)		(198,000	)
Long-term liabilities		(640,500	)		(558,000	)		(558,000	)

1. Prepare Francisco’s journal entry to record the assets acquired and the liabilities assumed in the Beltran merger on January 1, 2017.

2. 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 $1,740,250. What amount of goodwill impairment, if any, should Francisco recognize on its 2018 income statement?

Answer 1

To Calculate the Book Value of Goodwill As on January 1,2017 :
To Calculate Consideration Transferred to
Particulars	Amount ($)
Cash paid	$ 657,500
Fair value of Shares issued	$1,320,000
(110,000 shares *$12 )
Consideration Transferred	$ 1,977,500
To Calculate the Fair value of Net asset acquired :
Particulars	Amount ($)
Cash	$107,000
Receivables	$ 281,750
Inventory	$ 378,500
Patents	$ 535,500
Customers Relationships	$ 660,750
Equipment (Net )	$ 374,500
Less: Accounts payable	($136,000)
Less: Long-term Liabilities	($640,500)
Fair value of Net asset acquired	$1,561,500
To Calculate Book Value of Goodwill :
Particulars	Amount ($)
Consideration Transferred (Calculated above)	$ 1,977,500
Less: Fair value of Net Asset Acquired(Calculated above)	($1,561,500)
Book Value of Goodwill	$ 416,000

Journal Entry :
Date	Account Title and Explanation	Debit	Credit
January,1,2017	Cash	$107,000
	Receivables	$ 281,750
	Inventory	$ 378,500
	Patents	$ 535,500
	Customers Relationships	$ 660,750
	Equipment (Net )	$ 374,500
	Good will (Calculated above)	$ 416,000
	Accounts payable		$136,000
	Long-term Liabilities		$640,500
	Common stock (110,000 shares *$1 )		$ 110,000
	Additional Paid in capital (110,000 shares *$11)		$1,210,000
	(To record Assets acquired and Liabilities assumed as on January ,1,2017)

Required 2 :
To Calculate the Loss on Goodwill Impairment as on December 31,2018 :
Fair value of Reporting units as a whole = $ 1,740,250 (Given In the problem )
To Calculate the Fair value of reporting units Net asset :
Particulars	Amount ($)
Cash	$76,000
Receivables	$ 316.500
Inventory	$ 426,000
Patents	$ 622,000
Customers Relationships	$ 630,000
Equipment (Net )	$ 308,000
Less: Accounts payable	($198,000)
Less: Long-term Liabilities	($558,000)
Fair value of Reporting unit Net asset	$ 1,622,500
To Calculated Impaired Value of Goodwill :
Particulars	Amount ($)
Fair value of Reporting units as a whole (Given)	$ 1,740,250
Less: Fair value of Reporting unit Net asset (Calculated Above)	($1,622,500)
Impaired Value of Goodwill	$ 117,750
To Calculate the Loss on Goodwill Impairment:
Particulars	Amount ($)
Impaired Value of Goodwill	$ 117,750
Less: Book Value of Goodwill	($416,000)
Loss on Goodwill Impairment	($298,250)
So, Loss on Goodwill impairment ($298,250) is recognized on its
Income statements on 31 , December 2018