Problem 1:
Assignment 2
On July 1, Smach Co. reported the following account balances along with their estimated fair
values:
Carrying Amount
Fair Value
Receivables
$180,000
$180,000
Inventory
150,000
150,000
Copyrights
250,000
960,000
Patented Technology
1,650,000
1,400,000
Total Assets
$2,230,000
$2,690,000
Current Liabilities
$320,000
$320,000
Long-term Liabilities
1,290,000
1,270,000
Common Stock
200,000
Retained Earnings
420,000
Total Liabilities and Equities
$2,230,000
On that day, Calliro paid cash to acquire all of the assets and liabilities of Smach, which will
cease to exist as a separate entity. To facilitate the merger, Calliro also paid $200,000 to an
investment banking firm.
The following information was also available:
•
Calliro agreed to pay an extra $140,000 to the former owners of Smach only if they meet
certain revenue goals during the next two years. Calliro estimated the present value of its
probability adjusted expected payment for this contingency $70,000.
•
Smach has a research and development project in process with an appraised value of
$400,000. However the project has not yet reached technological feasibility and the
project’s assets have no alternative future use.
Required:
Prepare Calliro’s journal entries to record the Smach acquisition assuming its initial cash
payments to the former owners was:
a) $1,400,000.
b) $1,600,000.
Problem 2:
Danton Company acquires all of Cane’s of assets and liabilities for cash on January 1, 2016, and
subsequently formally dissolves Cane. At the acquisition date, the following book and fair values
were available for the Cane’s Company accounts:
Book Values
Fair Values
Current assets
30,000
30,000
Building
45,000
25,000
Land
5,000
10,000
Trademark
-0-
15,000
Liabilities
