In a pre-2009 business combination, Acme Company acquired all of Brem Company\'s
ID: 2329087 • Letter: I
Question
In a pre-2009 business combination, Acme Company acquired all of Brem Company's assets and liabilities for cash. After the combination Acme formally dissolved Brem. At the acquisition date, the following book and fair values were avalilable for the Brem Company accounts: 61,800 61,800 Equipment Liabilities Common stock Retained earnings 157,000 (73,800) (45,000) 220,000 330,000 (73,800) (100,000) In addition, Acme paid an investment bank $31,100 cash for assistance in arranging the combination. a. Using the legacy purchase method for pre-2009 business combinations, prepare Acme's entry to record its acquisition of Brem in its accounting records assuming the following cash amounts of $640,700 and $424,700 were paid to the former owners of Brem. b. How would these journal entries change if the acquisition occurred post-2009 and therefore Acme applied the acquisition method? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations.) View transaction list Journal entry worksheet Record the acquisition of Brem using the purchase method assuming $640,700 was paid to the former owners of BremExplanation / Answer
a. Purchase Method
1. Purchase price (including acquisition costs) $671,800
Fair values of net assets acquired 538,000
Goodwill $133,800
Journal entry:
Current Assets 61,800
Equipment 220,000
Trademark 330,000
Goodwill 133,800
Liabilities 73,800
Cash 671,800
2. Acquisition date fair values:
Purchase price (including acquisition costs) $455,800
Fair values of net assets acquired 538,000
Bargain purchase ($ 82,200)
Allocation of bargain purchase to long-term assets acquired:
Total Asset
Fair value Prop. reduction reduction
Equipment $220,000 40% x $82,200 = $32,880
Trademark 330,000 60% x 82,200 = 49,320
$550,000 $82,200
Journal entry:
Current Assets 61,800
Equipment ($220,000 – $32,880) 187,120
Trademark ($330,000 – $49,320) 280,680
Liabilities 73,800
Cash 455,800
b. Acquisition Method
1. Consideration transferred $ 640,700
Fair values of net assets acquired 538,000
Goodwill $ 102,700
Journal entry:
Current Assets 61,800
Equipment 220,000
Trademark 330,000
Goodwill 102,700
Liabilities 73,800
Cash 640,700
Professional Services Expense 31,100
Cash 31,100
2. Consideration transferred $424,700
Fair values of net assets acquired 538,000
Gain on bargain purchase ($113,300)
Journal entry:
Current Assets 61,800
Equipment 220,000
Trademark 330,000
Liabilities 73,800
Gain on Bargain Purchase 113,300
Cash 424,700
Professional Services Expense 31,100
Cash 31,100
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