Problem 3-16 (LO 3-6) Francisco Inc. acquired 100 percent of the voting shares o

Question

Problem 3-16 (LO 3-6) Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $631,250 in cash and issued 126,000 shares of its own $1 par value common stock. On this date, Francisco's stock had a fair value of $12 per share The combination is a statutory merger with Beltran subsequently dissolved as a legal corporation. Beltran's assets and liabilities are assigned to a new reporting unit. The following reports the fair values for the Beltran reporting unit for January 1, 2017, and December 31, 2018, along with their respective book values on December 31, 2018. Fair ValuesFair ValuesBook Values 12/31/18 Beltran Reporting Unit Cash Receivables Inventory Patents Customer relationships Equipment (net) Goodwil1 Accounts payable Long-term liabilities 12/31/18 112,000 319,250 317,500 649,000 671,500 375, 500 $ 65,000 $ 65,000 358,500 350,000 748,000 642,000 300, 000 358,500 344,700 601,000 593,750 293,600 454, 000 (215, 000) (544, 000) (126,000) (629,500) (215,000) (544, 000) a. Prepare Francisco's journal entry to record the assets acquired and the liabilities assumed in the Beltran merger on January 1, 2017 b. On December 31, 2018, Francisco opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire Beltran reporting unit is $1,841,000. What amount of goodwill Impairment, if any, should Francisco recognize on its 2018 income statement?

Explanation / Answer

(b).

Fair value as at 12/31/2018 without goodwill is $1,704,500.

Fair value estimate by Fracisco is $1,841,000. The difference is $136,500. This is the value of goodwill.

The goodwill at the time of acquisition $454,000.

Goodwill impairment to be recognized in income statement is $317,500($454,000 - $136,500).

FRANCISCO INC. (a). Journal entry at the time of acquisition : Date Account Title Debit Credit 1/1/17 Investment in Beltran Co. 2143250 Cash 631250 Common stock 126000 Additional paid in capital - Common stock 1386000 (To record investment made in Beltran Company ) Cash 112000 Receivables 319250 Inventory 317500 Patents 649000 Customer relationships 671500 Equipment 375500 Goodwill 454000 Accounts payable 126000 Long term liabilities 629500 Investment in Beltran Co. 2143250 (To record assets and liabilities acquired )

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.