Problems 12 and 13 relate to the following: On May 1, Donovan Company reported t
ID: 2439649 • Letter: P
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Problems 12 and 13 relate to the following: On May 1, Donovan Company reported the following account balances: $ 90,000 220,000 Current assets Buildings & equipment (net).... Total assets . Liabilities . Common stock Retained earnings . Total liabilities and equities ..$310,000 S 60,000 150,000 100,000 5310,000 DoMay 1, Beasley paid $400,000in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In conn ection with the merger, Beas incurred $15,000 in accounts payable for legal and accounting fees. Beasley also agreed to pay $75,000 to ing certain revenue goals during the following year. Beasley estimat its probability adjusted ex offer, Beasley noted the following: .Donovan holds a building with a fair value $30,000 more than its book value. the former owners of Donovan contingent on meet- ed the present value of pected payment for the contingency at $20,000. In determining its Donovan has developed unpatented technology appraised at $25,000, although is it not recorded in its financial records. a research and development activity in process with an appraised fair value of S45,000. The project has not yet reached technological fea Book values for Donovan's current assets an d liabilities approximate fair values. 12. What should Beasley record as total liabilities incurred Donovan merger? a. $15,000. b. $75,000 C. d. $150,000. or assumed in connection with the $95,000 13. How much should Beasley record as total assets acquired in the Donovan merger? a. $400,000 b. $420,000. c. $410,000. d. $480,000Explanation / Answer
12. Answer is option C $95,000
Legal and accounting fees accounts payable = $15,000
Add: Contingent liability = $20,000
Add: Donovan's liabilities assumed = $60,000
Liabilities assumed or incurred = $95,000
13. Answer is option D $480,000
Consideration transferred (FV) $420,000
Subtotal for FV of net identifiable assets acquired:
Current Assets = $90,000
+ Building and Equipment = $250,000
+ Unpatented Technology = $25,000
+ R&D Asset= $45,000
- Liabilities ($60,000)
FV of net identifiable assets acquired = $350,000
Goodwill = $420,000 - $350,000 = $70,000
Total assets acquired in the Donovan merger
Current Assets = $90,000
+ Building and Equipment = $250,000
+ Unpatented Technology = $25,000
+ R&D Asset = $45,000
+ Goodwill = $70,000
Total Assets = $480,000
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