Reference no: EM132722999

Question - On May 1, Soriano Co. reported the following account balances along with their estimated fair values:

Carrying Amount Fair Value

Receivables $72,600 $72,600

Inventory 89,400 89,400

Copyrights 135,000 530,000

Patented technology 921,000 698,000

Total assets $1,218,000 $1,390,000

Current liabilities $229,000 $229,000

Long-term liabilities 672,000 653,600

Common stock 100,000

Retained earnings 217,000

Total liabilities and equities $1,218,000

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 $138,500 to an investment banking firm.

The following information was also available:

Zambrano further agreed to pay an extra $83,400 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 $41,700.

Soriano has a research and development project in process with an appraised value of $210,000. However, the project has not yet reached technological feasibility and the project's assets have no alternative future use.

Required -

a&b. Prepare Zambrano's journal entries to record the Soriano acquisition assuming its initial cash payment to the former owners was (a) $656,700 & (b) $777,100. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $656,700.

2. Record the expenses related to the combination. Assume its initial cash payment to the former owners was $656,700.

3. Record the acquisition of Soriano Co. Assume its initial cash payment to the former owners was $777,100.

4. Record the expenses related to the combination. Assume its initial cash payment to the former owners was $777,100.