Question

In a pre-2009 business combination, Acme Company acquired all of Brem Company’s assets and liabilities for cash. After the combination Acme formally dissolved Brem. At the acquisition date, the following book and fair values were available for the Brem Company accounts:

	Book Values			Fair Values
Current assets	$	74,500		$	74,500
Equipment		135,500			205,500
Trademark		0			397,000
Liabilities		(65,000	)		(65,000	)
Common stock		(100,000	)
Retained earnings		(45,000	)

Note: Parentheses indicate a credit balance.

In addition, Acme paid an investment bank $32,700 cash for assistance in arranging the combination.

a.	Using the legacy purchase method for pre-2009 business combinations, prepare Acme’s entry to record its acquisition of Brem in its accounting records assuming the following cash amounts were paid to the former owners of Brem: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations to two decimal places.)
	1. $695,300

    

2. $497,800

    

b.	How would these journal entries change if the acquisition occurred post-2009 and therefore Acme applied the acquisition method? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. $695,300

    

2. $497,800

    

Answer 1

Dear Student ,

Please note that below answer break into Two parts :

One part relates to calculate Goodwill + Bargain Price - consider Acquisition cost + Price paid to arrange combination)- With Journal Entry .

2nd part - Same goodwill + Bargain price = Acquisition cost ( Exclude price to pay relates to Professional charges ) . Professional charges - Journal entry posted separately .

Business Combination- Acme company acquired
all of Brem Company
Acquistion date , FAIR Value of the asset acquired
		Fair Value($)
Current Asset		74,500
Equipment		2,05,500
TradeMark		3,97,000
Total Asset		6,77,000
Less
Liabilities		-65,500
Fair value of asset Acquired		6,11,500	B
As per Business combination, Acquisition cost ( Icluding
cash assistane- Acquisition cost )
Total Acquisition ( Purchase Price )		6,95,300
Add- Cash paid		32,700
Acquisition cost ( Icluding Acquisition cost		7,28,000	A
Good will		1,16,500	(A-B)
Journal Ehtry
Details		Debit$	Credit$
Current Asset		74,500
Equipment		2,05,500
TradeMark		3,97,000
Goodwill		1,16,500
Cash			7,28,000
Liabilities			65,500
2nd part is Bargian Purchase
Price relates to Bargain Purchase
uner Acquisition Method		4,97,800
Add- Cash paid		32,700
Acquisition cost ( Icluding Acquisition cost) under bargain		5,30,500	B1
Fair value of asset Acquired		6,11,500	A1
( as above)
In this case .Acquisition cost is lower than Fair value
Burgain Price		81,000	(A1-B1)
Next level , need to adjust Burgain
Price in Proportinate against
Equipment & Trade Mark
		Amnt($)	Proportion %	Burgain price	Allocated Burgain
Equipment		2,05,500	34%		27,627
TradeMark		3,97,000	66%		53,373
Total		6,02,500		81,000	81,000
Journal Ehtry
Details		Debit$	Credit$
Current Asset		74,500
Equipment ($205500-$27627)		1,77,873
TradeMark($397000-$53373)		3,43,627
Cash			5,30,500
Liabilities			65,500
Next step to calculate Goodwill Acquisition cost ( without paid cash for assistance in arranging combination		Amnt$
Total Acquisition ( Purchase Price )		6,95,300	c
Fair value of asset Acquired		6,11,500	d
( as above )
Goodwill		83,800	(c-d)
Journal Ehtry
Details		Debit$	Credit$
Current Asset		74,500
Equipment		2,05,500
TradeMark		3,97,000
Goodwill		83,800
Cash			6,95,300
Liabilities			65,500
Professional charges		32,700
cash			32,700
Next step to calculate Burhainl Price Acquisition cost ( without paid cash for assistance in arranging combination		Amnt$
Total Acquisition ( Purchase Price )		4,97,800	c1
Fair value of asset Acquired		6,11,500	d1
( as above )
Burgain Price		-1,13,700	(c1-d1)
Journal Ehtry
Details		Debit$	Credit$
Current Asset		74,500
Equipment		2,05,500
TradeMark		3,97,000
Gain on Burgein Price			1,13,700
Cash			4,97,800
Liabilities			65,500
Professional charges		74,500
cash			74,500