Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Prycal Co. merges with InterBuy, Inc., and acquires several different categories of intangible assets including trademarks, a customer list, copyrights on artistic materials, agreements to receive royalties on leased intellectual property, and unpatented technology.a. Describe the criteria for determining whether an intangible asset acquired in a business combination should be separately recognized apart from goodwill.b. For each of the acquired intangibles listed, identify which recognition criteria (separability and legal/contractual) may or may not apply in recognizing the intangible on the acquiring firm’s financial statements.
Melton Devices acquires Beck, a small start-up company, by paying $2,170,900 in cash on January 2. Following are the book values and fair values of Beck on the date of acquisition.
(Click the icon to view the book values and fair values.)
Read the requirements.
Requirement a. What is the amount of goodwill acquired?
The amount of goodwill acquired
Requirement b. What intangible assets are acquired? Which of the intangibles have an indefinite life? Which will be amortized? What will the amortization expense be in the year after acquisition? (If an input field
is not used in the table leave the field empty, do not enter a zero)
Intangible
Asset
Finite or
Indefinite Life
Amortization
Amortized?
Expense
Trial Balance
Beck
Book Value
Fair Value
Cash
$
29,000 $
29,000
Receivables
100,700
100,650
Manufacturing Equipment
640,350
654,500
Patents (remaining life 8 years)
60,600
684,000
Trademarks
14,650
187,500
Payables
58,904
58,904
Print
Done
Samtech Manufacturing purchased land and a building for $4 million. In addition to the purchase price, Samtech made
the following expenditures in connection with the purchase of the land and building:
Title insurance
Legal fees for drawing the contract
Pro-rated property taxes for the period after
acquisition
State transfer fees
An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.2 and $1.8
million, respectively. Shortly after acquisition, Samtech spent $92,000 to construct a parking lot and $50,000 for
landscaping.
Required:
1. Determine the initial valuation of each asset Samtech acquired in these transactions.
2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the
building. Demolition costs were $350,000 and the salvaged materials were sold for $6,000. In addition, Samtech
spent $89,000 clearing and grading the land in preparation for the construction of a new…
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- Carver Inc. purchased a building and the land on which the building is situated for a total cost of $922,800 cash. The land was appraised at $244,081 and the building at $817,139. What is the accounting term for this type of acquisition? Determine the amount of the purchase cost to allocate to the land and the amount to allocate to the building. Would the company recognize a gain on the purchase? Record the purchase in a horizontal statements model.arrow_forwardIn January 1, 2015, Fun company purchased Company A for $40,000 in cash and paid immediately. Fun company assumed all of Company A's assets and assumed Company A's liabilities. company A has assets valued at $60,000 and liabilities valued at $50,000. Question 2: in 2016, fun company must test for the impairment of goodwill. Assume the only goodwill on fun company's books is from the acquisition of company A. Fun company determined that the goodwill has an estimated future cash flow of $25,000 and a fair market value of $20,000. Does fun company have to recognize an impairment? Why or why not? If an impairment must be recognized, compute the impairment loss and record the journal entry. ACTUAL QUESTION: suppose that the estimated future cash flow of goodwill in question #2 is $32,000, while the fair market value continues to be $20,000. Does fun company have to recognize an impairment? Why or why not? If an impairment must be recognized, compute the impairment loss and record the…arrow_forwardBroadsystems designs websites and writes bespoke software. It disclosed in its financial statements $15 million of music and screen production rights which it had acquired via the purchase of another subsidiary. The group policy is to classify this intangible as current assets under inventory. Further, during the current financial period, the group has capitalised its domain names acquisition costs of $1 million within tangible non-current assets, and revalued the asset to $3 million. Evaluate and comment the accounting treatment of Broadsystems.arrow_forward
- Carla Vista Company is considering the acquisition of Kingbird, Inc. To assess the amount it might be willing to pay, Carla Vista makes the following computations and assumptions. A. B. C. Kingbird, Inc. has identifiable assets with a total fair value of $6,016,000 and liabilities of $3,719,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 25% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Kingbird, Inc. Kingbird, Inc.'s pretax incomes for the years 2020 through 2022 were $472,100, $573,300, and $372,700, respectively. Carla Vista believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings: Depreciation on Buildings (each year) Depreciation on Equipment…arrow_forwardAnton Company acquired the net assets of Hair Company on January 1, 2015, for $600,000. Using a business valuation model, the estimated value of Anton Company was $650,000 immediately after the acquisition. The fair value of Anton’s net assets was $400,000. 1. What amount of goodwill was recorded by Anton Company when it acquired Hair Company?2. Using the information, answer the questions posed in the following two independent situations: a. On December 31, 2016, there were indications that goodwill might have been impaired. At that time, the existing recorded book value of Anton Company’s net assets, including goodwill, was $500,000. The fair value of the net assets, exclusive of goodwill, was estimated to be $340,000. The value of the business was estimated to be $520,000. Is goodwill impaired? If so, what adjustment is needed? b. On December 31, 2018, there were indications that goodwill might have been impaired. At that time, the existing recorded book value of Anton Company’s net…arrow_forwardDuring the current year, the Great Drake Company acquired a manufacturing facility at a total acquisition cost of $4,800,000. The acquisition included the factory building, land, and all existing equipment in the facility. The firm estimates the fair value of the assets if acquired separately at a total of $5,500,000 with the fair value of the factory building at $2,695,000, the fair value of the land at $825,000, and the fair value of the equipment at $1,980,000. Determine the capitalized cost of each asset using the relative fair value method and prepare the necessary journal entry to record the acquisition assuming that Great Drake paid cash for the facility. Determine the capitalized cost of each asset using the table below. Assets Type Factory Building Land Equipment Total Fair Value Account Percentage of Total Fair Value %6 %6 %6 %6 Total Cost of Manufacturing Facility Allocation to Specific Balance Sheet Accounts Now, prepare the necessary journal entry to record the…arrow_forward
- arizona corp. acquired the business data systems for $320,000 cash and assumed all liabilites at the data of purchase. data's books showed tangible assets of $340,000, liabilities of $19,000, and stockholders' equity of $321,000. an appraiser assessed the fair market value of the tangible assets at $310,000 at the data of acquisition. a. compute the amount of goodwill acquired. b. record the acquisition in a financial statements model. Arizona corps. financial condition just prior to the aquistion is shown in the following statements model. cash paid- liabilites assumed- total- FMV of assets- goodwill-arrow_forwardABC Co. is acquiring XYZ Inc. XYZ has the following intangible assets: Customer list with an observable fair value of $45,000 Identifiable research and development costs of $150,000 A 5-year operating lease with favorable terms having a discounted present value of $6,000. Patent on a product that is deemed to have no useful life $15,000. ABC will record how much for acquired Intangible Assets from the purchase of XYZ Inc?arrow_forwardAccounting for intangibles Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company, which had the following figures: Requirements Journalize the entry to record Core’s purchase of Surety Wireless for $280,000 cash plus a $420,000 note payable. What special asset does Core’s acquisition of Surety Wireless identify? How should Core Telecom account for this asset after acquiring Surety Wireless? Explain in detail.arrow_forward
- Reck Company is considering the acquisition of Clock Inc. To assess the amount it might be willing to pay, Reck makes the following computations and assumptions.A. Clock, Inc. has identifiable assets with a total fair value of OMR 9,000,000 and liabilities of OMR 6,500,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Clock Inc.B. Clock Inc.'s pretax incomes for the years 2018 through 2020 were OMR 580,000, OMR 420,000, and OMR 350,000, respectively. Reck believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings:Depreciation on Buildings (each year) 380,000Depreciation on Equipment…arrow_forwardGlass Company is thinking about acquiring Plastic Company. Glass Company is considering two methods of accomplishing control and is wondering how the accounting treatment will differ under each method. Glass Company has estimated that the fair values of Plastic’s net assets are equal to their book values, except for the equipment, which is understated by $20,000.The following balance sheets have been prepared on the date of acquisition:Assets Glass PlasticCash . . . . . . . . . . . . . . . . . . . . . . . . . . . $540,000 $ 20,000Accounts receivable . . . . . . . . . . . . . . . 50,000 70,000Inventory . . . . . . . . . . . . . . . . . . . . . . . . 50,000 100,000Property, plant, and equipment (net) . . . 230,000 270,000Total assets. . . . . . . . . . . . . . . . . . . . . $870,000…arrow_forwardLarceny Company purchased another entity for P8,000,000. The assets and liabilities of the acquiree at fair value are as follows: Cash P1,000,000 Inventory 500,000 In-process research and development 5,000,000 Assembled workforce 1,200,000 Accounts payable 2,600,000 Notes Payable 400,000 REQUIRED: Determine the amount of goodwill Prepare the journal entry to record the acquisitionarrow_forward
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