On May 1, Donovan Company reported the following account balances: Current assets $ 113,000 Buildings & equipment (net) 258,500 Total assets $ 371,500 Liabilities $ 102,000 Common stock 150,000 Retained earnings 119,500 Total liabilities and equities $ 371,500 On May 1, Beasley paid $425,500 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $22,500 in accounts payable for legal and accounting fees. Beasley also agreed to pay $85,000 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $27,200. In determining its offer, Beasley noted the following: Donovan holds a building with a fair value $37,900 more than its book value. Donovan has developed unpatented technology appraised at $28,300, although is it not recorded in its financial records. Donovan has a research and development activity in process with an appraised fair value of $45,400. The project has not yet reached technological feasibility. Book values for Donovan’s current assets and liabilities approximate fair values. What should Beasley record as total liabilities incurred or assumed in connection with the Donovan merger?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On May 1, Donovan Company reported the following account balances:


Current assets	$	113,000
Buildings & equipment (net)		258,500
Total assets	$	371,500
Liabilities	$	102,000
Common stock		150,000
Retained earnings		119,500
Total liabilities and equities	$	371,500

On May 1, Beasley paid $425,500 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $22,500 in accounts payable for legal and accounting fees.

Beasley also agreed to pay $85,000 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $27,200. In determining its offer, Beasley noted the following:

Donovan holds a building with a fair value $37,900 more than its book value.
Donovan has developed unpatented technology appraised at $28,300, although is it not recorded in its financial records.
Donovan has a research and development activity in process with an appraised fair value of $45,400. The project has not yet reached technological feasibility.
Book values for Donovan’s current assets and liabilities approximate fair values.

What should Beasley record as total liabilities incurred or assumed in connection with the Donovan merger?

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