Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on J

Question

Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $671,750 in cash and issued 118,000 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 Values Fair Values 12/31/18 Book Values 12/31/18 Beltran Reporting Unit Cash Receivables Inventory Patents Customer relationships Equipment (net) Goodwil.1 Accounts payable Long-term liabilities $ 112,500 $ 73,50e $ 73,50e 202,250 469,000 580,500 608,500 348,000 258,000 500,000 682,000 574,000 251,000 258,000 487,000 552,000 540,500 245,000 576,000 (273,000) (564,000) (187,500) (621,500) (273,000) (564,000) 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 $1,611,750. What amount of goodwill impairment, if any, should Francisco recognize on its 2018 income statement?

Explanation / Answer

Journal Entry No. Date General Journal Debit Credit           1 01-01-2017 Cash $1,12,500 Receivable $2,02,250 Inventory $4,69,000 Patent $5,80,500 Customer Relationship $6,08,500 Equipment ( Net) $3,48,000 Goodwiill $5,76,000 Account Payable $1,87,500 Long Termm Liabilities $6,21,500 Cash $6,71,750 Common Stock ( Francisco Co, par Value) $1,18,000 Additional Paid in Capital (118000Share *$11) $12,98,000 Computation of Goodwill Cash paid $6,71,750 Fair Value of Share Issued (118000Shares X $12) $14,16,000 Fair Value transferred (a) $20,87,750 Fair Value of net Asset Acquired and Liabilities Assumed (b) $15,11,750 Goodwill recognized (a-b) $5,76,000 Part-b Step One in Goodwill Impairment test: Fair Value of Reporting Unit as Whole $16,11,750 Book Value of Reporting Unit's Net Asset $18,95,000 Total Fair Value of Unit as whole is less than it's carrying Value , hence Goodwill impairment Loss Exist Computation of Goodwill Impairment Loss Fair Value of Reporting Unit as whole $16,11,750 Fair Value of Reporting Unit's Net Asset Excluding Goodwill $15,01,500 Impaired Fair Value of Goodwill $1,10,250 Book Value of Goodwill $5,76,000 Goodwill Impairment losss $4,65,750

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