Sun Corporation concluded the fair value of Tender Company was $68,000 and paid

Question

Sun Corporation concluded the fair value of Tender Company was $68,000 and paid that amount to acquire its net assets. Tender reported assets with a book value of $51,000 and fair value of $63,000 and liabilities with a book value and fair value of $29,000 on the date of combination. Sun also paid $11,000 to a search firm for finder’s fees related to the acquisition. Required: Prepare the journal entries to be made by Sun to record its investment in Tender and its payment of the finder’s fees. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Solution:

Journal Entry to record its investment in Tender

Net Asset Value of Tender Company = Fair Value of Assets - Fair Value of Liabilities= $63,000 - $29,000 = $34,000

Amount paid by SUn Corporation for acquiring Net Asset (Consideration) = $68,000

Goodwill = $68,000 - $34,000 = $34,000

Journal Entry to be passed

Asset A/c (at fair value) Dr. $63,000

Goodwill A/c (bal. figure) Dr. $34,000

To Cash A/c $68,000

To Liabilities (at fair value) $29,000

(being net asset acquired of Tender Company)

Journal Entry to record finder's fees related to the acquisition:

Acquisition Expenses Dr. $11,000

To Cash $11,000

(Being acquisition expenses paid)

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