Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Textbook Question
Chapter 2, Problem 13P
On May 1, Donovan Company reported the following account balances:
| Current assets | $ 90,000 |
| Buildings & equipment (net) | 220,000 |
| Total assets | $310,000 |
| Liabilities | $ 60,000 |
| Common stock | 150,000 |
| 100,000 | |
| Total liabilities and equities | $310,000 |
On May 1, Beasley paid $400,000 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $15,000 in accounts payable for legal and accounting fees.
Beasley also agreed to pay $75,000 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $20,000. In determining its offer, Beasley noted the following:
- Donovan holds a building with a fair value $30,000 more than its book value.
- Donovan has developed unpatented technology appraised at $25,000, although is it not recorded in its financial records.
- Donovan has a research and development activity in process with an appraised fair value of $45,000. The project has not yet reached technological feasibility.
- Book values for Donovan's current assets and liabilities approximate fair values.
12. What should Beasley record as total liabilities incurred or assumed in connection with the Donovan merger?
-
- a. $15,000
- b. $75,000
- c. $95,000
- d. $150,000
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s00
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Additional information
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Required:
In so far as the information permits, prepare the company's income statement for the year to 31 March
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Inventory 450,000
Property and plant (net) 600,000
Total $1, 400,000
Liabilities and Equity
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Chapter 2 Solutions
Advanced Accounting
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