P2.10 Valuation Adjustments On March 10,2020, Prism Corporation acquired all of
ID: 2329890 • Letter: P
Question
P2.10 Valuation Adjustments On March 10,2020, Prism Corporation acquired all of Skyhawk Inc.for to- tal consideration of $45 million, consisting of $43 million in cash and $2 million in vested stock options. Prism's acoounting year ends June 30. Fair values of Skyhawk's identi fiable net assets as of the date of acquisition, as well as adjustments made as of June 30, 2020, are listed below. Estimates of value as of date of acquisition Estimate at 3/10/2020 Estimate at 6/30/2020 (in thousands) Adjustments $5,000 8,500 15,000 13,000 (3,000) (18,000) $20,500 5,005 8,000 14,000 13,400 (3,050) (17,900) $19,455 Current assets . 5 500) (1,000) 400 (50) 100 Long-term debt otals . . $1,045 A more precise estimate at June 30, 2020 of the value of the vested stock options as of the acquisition date is $2.2 million a. Does Prism Corporation need an additional adjustment entry on June 30, 2020? Expalin why it has to adjust for the change. If your answer is "yes" continue to b Otherwise stop here. b. Please make any adjusting journal entry?Explanation / Answer
As acquisition made on 10 march 2020 and purchase consideration paid in partly in cash and partly in vested stock options. Since on the date of acquisition of business stock options valued as $ 2 million but on year end a more precise value determination made and value is more than that determined on date of acquisition. Therefore Prism Corporation required to make additional adjustment entry as accounting year is not ended and value is determined before the accounting year has closed. Therefore Prism Corporation required to make adjustment entry as on 30 June 2020.
Part b.
Value of net assets and liabilities as on 30 June 2020 = $ 19.455 million
Purchase consideration paid $ 43 million + $ 2.2 million = $ 45.2 million
Journal Entry are
Indifinite life intangible assets (Goodwill) Dr $ 25.745 m
To Purchase Consideration $ 25.745 m
(Being adjustment entry passed for $45.2 - $19.455 m)
Assuming all other entries are made on the date of acquisitions.
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