On May 1, Soriano Co. reported the following account balances along with their estimated fair values: Carrying Amount Fair Value Receivables $ 221,500 $ 221,500 Inventory 81,000 81,000 Copyrights 131,500 496,500 Patented technology 834,000 610,000 Total assets $ 1,268,000 $ 1,409,000 Current liabilities $ 186,000 $ 186,000 Long-term liabilities 714,000 704,000 Common stock 100,000 Retained earnings 268,000 Total liabilities and equities $ 1,268,000 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 $148,500 to an investment banking firm. The following information was also available: Zambrano further agreed to pay an extra $73,000 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 $36,500. Soriano has a research and development project in process with an appraised value of $232,500. 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) $692,900 & (b) $817,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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

	Carrying Amount	Fair Value
Receivables	$	221,500	$	221,500
Inventory		81,000		81,000
Copyrights		131,500		496,500
Patented technology		834,000		610,000
Total assets	$	1,268,000	$	1,409,000
Current liabilities	$	186,000	$	186,000
Long-term liabilities		714,000		704,000
Common stock		100,000
Retained earnings		268,000
Total liabilities and equities	$	1,268,000

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 $148,500 to an investment banking firm.

The following information was also available:

Zambrano further agreed to pay an extra $73,000 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 $36,500.
Soriano has a research and development project in process with an appraised value of $232,500. 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) $692,900 & (b) $817,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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