Question

On June 30, 2018, Streeter Company reported the following account balances:

Receivables	$	64,000			Current liabilities	$	(11,500	)
Inventory		94,000			Long-term liabilities		(74,000	)
Buildings (net)		86,500			Common stock		(90,000	)
Equipment (net)		31,000			Retained earnings		(100,000	)
Total assets	$	275,500			Total liabilities and equities	$	(275,500	)

On June 30, 2018, Princeton Company paid $311,500 cash for all assets and liabilities of Streeter, which will cease to exist as a separate entity. In connection with the acquisition, Princeton paid $7,700 in legal fees. Princeton also agreed to pay $59,200 to the former owners of Streeter contingent on meeting certain revenue goals during 2019. Princeton estimated the present value of its probability adjusted expected payment for the contingency at $17,000.

In determining its offer, Princeton noted the following pertaining to Streeter:

• It holds a building with a fair value $42,100 more than its book value.
• It has developed a customer list appraised at $21,000, although it is not recorded in its financial records.
• It has research and development activity in process with an appraised fair value of $39,400. However, the project has not yet reached technological feasibility and the assets used in the activity have no alternative future use.
• Book values for the receivables, inventory, equipment, and liabilities approximate fair values.

• Record the acquisition of Streeter company.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

• Record the legal fees related to the combination.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 2

Answer 1

Answer:

The following entries will be prepared to record the combination:

Transaction	Particulars	Debit ($)	Credit ($)
1	Accounts Receivable	64000
	Inventory	94000
	Buildings (86500+42100)	128600
	Equipment	31000
	Customers List	21000
	Research and Development	39400
	Goodwill	36000
	Current Liabilities		11500
	Long term Liabilities		74000
	Contingent Liability		17000
	Cash		311500
	(To record assets and liabilities acquired and consideration paid)
2	Professional Service fees expenses	7700
	Cash		7700
	(To record legal fees paid in connection to the acquisition.)

Working Note:

Accquisition cost		311500
Contingnet obligation performance		17000
Total acquisition cost		328500
Less: Fair value of streetor company
Receivables	64000
Inventory	94000
Buildings (86500+42100)	128600
Equipment	31000
Customer list	21000
Capitalized R &D	39400
Current liabilities	(11500)
Long term liabilities	(74000)	292500
Goodwill		36000