Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on J
ID: 2610674 • Letter: F
Question
Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $795,250 in cash and issued 108,000 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.
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 $1,728,750. What amount of goodwill impairment, if any, should Francisco recognize on its 2018 income statement?
Beltran Reporting Unit Fair Values1/1/17 Fair Values
12/31/18 Book Values
12/31/18 Cash $ 122,500 $ 93,500 $ 93,500 Receivables 296,750 351,000 351,000 Inventory 302,000 336,000 325,900 Patents 623,000 720,000 581,500 Customer relationships 621,500 592,000 546,000 Equipment (net) 329,500 273,000 267,050 Goodwill ? ? 586,000 Accounts payable (105,500 ) (186,000 ) (186,000 ) Long-term liabilities (684,500 ) (588,000 ) (588,000 )
a. Prepare Francisco’s journal entry to record the assets acquired and the liabilities assumed in the Beltran merger on January 1, 2017.
No Date General Journal Debit Creditb. 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 $1,728,750. What amount of goodwill impairment, if any, should Francisco recognize on its 2018 income statement?
Explanation / Answer
a) Date General Journal Debit Credit Jan.1 2017 Cash $122,500.00 Receivables $296,750.00 Inventory $302,000.00 Patents $623,000.00 Customer relationships $621,500.00 Equipment (net) $329,500.00 Goodwill (balancing figure) $586,000.00 Accounts payable $105,500.00 Long-term liabilities $684,500.00 Cash $795,250.00 Common stock (Francisco Co., par value) $108,000.00 Additional paid-in capital (108,000 x $11) $1,188,000.00 b) Step one in quantitative goodwill impairment test: Fair value of reporting unit as a whole (GIVEN) $1,728,750.00 Book value of reporting unit's net assets $1,976,950.00 a potential goodwill impairment loss exists as the total fair value of the reporting unit is less than its carrying value. Fair value of reporting unit as a whole (GIVEN) $1,728,750.00 Fair values of reporting unit's net assets (excluding goodwill)(31st dec) $1,591,500.00 Implied fair value of goodwill $137,250.00 Book value of Goodwill $586,000.00 Goodwill impairment loss $448,750.00
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