13th Edition

ISBN: 9781260773033

Author: Hoyle

Publisher: MCG

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Textbook Question

Chapter 2, Problem 12P

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

Current assets	$ 90,000
Buildings & equipment (net)	220,000
Total assets	$310,000
Liabilities	$ 60,000
Common stock	150,000
Retained earnings	100,000
Total liabilities and equities	$310,000

On May 1, Beasley paid $400,000 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 $15,000 in accounts payable for legal and accounting fees.

Beasley also agreed to pay $75,000 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 $20,000. In determining its offer, Beasley noted the following:

Donovan holds a building with a fair value $30,000 more than its book value.
Donovan has developed unpatented technology appraised at $25,000, although is it not recorded in its financial records.
Donovan has a research and development activity in process with an appraised fair value of $45,000. The project has not yet reached technological feasibility.
Book values for Donovan's current assets and liabilities approximate fair values.
12. What should Beasley record as total liabilities incurred or assumed in connection with the Donovan merger?

1. a. $15,000
2. b. $75,000
3. c. $95,000
4. d. $150,000

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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Chapter 2, Problem 11P

Chapter 2, Problem 13P

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Chapter 2 Solutions

ADVANCED ACCOUNTING

Ch. 2 - Prob. 1Q Ch. 2 - Prob. 2Q Ch. 2 - What does the term consolidated financial...Ch. 2 - Within the consolidation process, what is the...Ch. 2 - Prob. 5Q Ch. 2 - Prob. 6Q Ch. 2 - Prob. 7Q Ch. 2 - Prob. 8Q Ch. 2 - Prob. 9Q Ch. 2 - Prob. 10Q

Ch. 2 - Prob. 11Q Ch. 2 - Which of the following does not represent a...Ch. 2 - Prob. 2P Ch. 2 - Prob. 3P Ch. 2 - Prob. 4P Ch. 2 - Prob. 5P Ch. 2 - An acquired entity has a long-term operating lease...Ch. 2 - When does gain recognition accompany a business...Ch. 2 - Prob. 8P Ch. 2 - Prob. 9P Ch. 2 - Prob. 10P Ch. 2 - On June 1, Cline Co. paid 800,000 cash for all of...Ch. 2 - On May 1, Donovan Company reported the following...Ch. 2 - Prob. 13P Ch. 2 - Prob. 14P Ch. 2 - Prob. 15P Ch. 2 - Prob. 16P Ch. 2 - On its acquisition-date consolidated balance...Ch. 2 - On its acquisition-date consolidated balance...Ch. 2 - Problems 19 and 20 are based on the following...Ch. 2 - In the December 31, 2017, consolidated balance...Ch. 2 - Prob. 21P Ch. 2 - The following book and fair values were available...Ch. 2 - Prob. 23P Ch. 2 - Prob. 24P Ch. 2 - Prob. 25P Ch. 2 - Prob. 26P Ch. 2 - Prob. 27P Ch. 2 - Prob. 28P Ch. 2 - Prob. 29P Ch. 2 - Prob. 30P Ch. 2 - Prob. 31P Ch. 2 - SafeData Corporation has the following account...Ch. 2 - Prob. 33P Ch. 2 - Prob. 34P Ch. 2 - Prob. 35APA Ch. 2 - On February 1, Piscina Corporation completed a...Ch. 2 - Prob. 37APB Ch. 2 - Prob. 38APB Ch. 2 - Prob. 1DYS Ch. 2 - Prob. 2DYS Ch. 2 - Prob. 3DYS Ch. 2 - Prob. 4DYS

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Solution Summary: The author explains that Company B records the amount as total liabilities incurred or assumed in connection with the Company D merger.

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