Jasmin Marrero

Fall 2023
Chapter 2 Assignment

1. The following items have been identified for an acquiree company. Which one(s) are separately
capitalized by the acquiring company, per FASB ASC 805?
a. In-process research and development, brands names, developed technology
b. Skilled workforce, potential contracts, future costing savings, favorable press reports
c. Potential contracts, in-process research and development, favorable press reports
d. Developed technology, brand names, favorable location

2. Blair Company acquires all of the assets and liabilities of Tomlinson Corporation, in a transaction
reported as a merger. How are the assets and liabilities of Blair and Tomlinson reported?
a. Tomlinson’s assets and liabilities remain at book value, and Blair’s assets and liabilities are reported
at fair value at the date of acquisition
b. The assets and liabilities of both Blair and Tomlinson are reported at fair value at the date of
acquisition
c. Blair’s assets and liabilities remain at book value, and Tomlinson’s assets and liabilities are reported
at fair value at the date of acquisition
d. The assets and liabilities of both Blair and Tomlinson are reported at book value at the date of
acquisition

3. Company Y is purchased by Company X, at an acquisition cost that resulted in a $100,000 of goodwill.

One of the assets acquired is a building, originally valued at $37,000 at the date of acquisition. Six
months after the acquisition, it is discovered that the building was really only worth $25,000 at the date of
acquisition. What entry is made to reflect this new information?
a. A debit of $12,000 to Loss on Impairment
b. A debit of $12,000 to Goodwill
c. A credit of $12,000 to Gain from Bargain Purchase
d. A debit of $100,000 to Goodwill

4. Johnson paid a fixed consideration of $275,000 to acquire 100% of Willis Corporation in a statutory
merger. In addition, Johnson also agreed to pay the shareholders of Willis $0.40 in cash for every dollar
in income from continuing operations of the combined entity over $75,000 in the first three years
following acquisition. Johnson projects that there is a 20% (45%, 35%) probability that the income from
continuing operations in the first three years following acquisition is $65,000 ($80,000, $115,000
respectively). Johnson uses a discount rate of 4%.

Information for Willis Corporation immediately before the merger was as follows:
Book value Fair value
Current assets 40,000 50,000
Plant assets 120,000 70,000
Liabilities 50,000 45,000
 Previously unreported items identified as belonging to Willis:
Fair value
Contracts under negotiation with potential customers 15,000
In-process research and development 21,000
Skilled workforce 23,000
Recent favorable press reports on Willis 2,000
Proprietary databases 7,000

(i) Show your determination of the contingent consideration.

0 x $0.40 x 20% = $ 0
(80,000-75,000) x $0.40 x 45% = $ 900
(115,000-75,000) x $0.40 x 35%= $ 5,600
$6500
Contingent consideration: 6,500÷ (1+0.04)^3= $5778
(ii) Show your determination the goodwill to be reported in this acquisition.
Considerations: $275,000+$5778=$280,778
FVNCI: $50,000+$70,000-45,000+21000+7000=103,000
Goodwill: 2780,778-103,000=177,778

5. HC Corporation issued 7,500 shares of its $3 par value common stock at a market price of $20 per share
to acquire all the outstanding common stock of Barry Corporation. HC paid $1,500 of legal fees for this
business combination and $3,300 for issuing the securities. Barry was merged into HC and dissolved.
Information for Barry Corporation immediately before the merger was as follows:
Book value Fair value
Cash 2,000 2,000
Building 30,000 25,000
Patents 7,000
Total 32,000 34,000
Accounts payable 5,000 5,000
Common stock 2,000
Add. paid-in capital 10,000
Retained earnings 15,000
Total 32,000

Prepare the journal entries on HC Corporation’s books to account for the business combination.

HC entries:
Cash 2,000
Building 25,000
Patents 7,000
Goodwill 121,000
Accounts Payable 5,000
Common Stock 22,500
Add. Paid-in Capital 127,500

Common Stock= 7,500x $3= $22,500

Additional Paid in capital 7,500 shares x ($20-3)= $127,500
Goodwill: (7,500 x $20) - (2,000+25,000+7,000-5,000)=$121,000
Merger Expenses 1,500
Add. Paid-in Capital 3,300
Cash 4,800