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Business Combinations - Boardwork

Tony Inc. acquires all assets and liabilities of Jaramillo Co. on January 1, 2022, incurring various costs and recognizing previously unrecorded intangible assets. The acquisition includes a potential additional cash consideration based on future income targets, with a fair value assessed for this contingency. The document outlines requirements for accounting entries related to goodwill and bargain purchase gain, as well as the preparation of Tony's balance sheet post-merger.

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Aiwon Zeihane Flores
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8 views

Business Combinations - Boardwork

Tony Inc. acquires all assets and liabilities of Jaramillo Co. on January 1, 2022, incurring various costs and recognizing previously unrecorded intangible assets. The acquisition includes a potential additional cash consideration based on future income targets, with a fair value assessed for this contingency. The document outlines requirements for accounting entries related to goodwill and bargain purchase gain, as well as the preparation of Tony's balance sheet post-merger.

Uploaded by

Aiwon Zeihane Flores
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Accounting for Business Combinations

Problem Solving for Board Work


Statutory Merger: Valuation of Assets and Liabilities, Consideration Transferred, Goodwill and
Bargain Purchase

Tony Inc. acquires all of Jaramillo Co.’s assets and liabilities on January 1, 2022. Tony incurs the following
costs for the acquisition:

The balance sheets of both companies immediately prior to the acquisition are as follows:

In addition to the assets and liabilities already reported, Jaramillo has the following previously
unrecorded intangible assets at fair value that meet the requirements for capitalization:
Brand names 5,000,000
Secret formulas 7,000,000
Tony, Inc. will pay an additional cash consideration of P1,000,000 on January 1, 2024 in the event that
average income for the two (2) year period of 2022 and 2023 will be equal or greater than P5,000,000
per year. At acquisition, there is a high probability of reaching the target average income and the fair
value of
the additional consideration was determined to be at an expected value of the contingency at P400,000
based on a 40% probability of achieving the target average income.

Required:
1. Goodwill. Prepare the journal entry or entries to record the acquisition on Tonys’ books (the
acquirer/acquiring company).
2. Bargain Purchase Gain/Gain on Acquisition. Assume the same information as above, but Jaramillo
has an additional previously unreported intangible that meets the requirements for
capitalization: a noncompetition agreement with a fair value of P10,000,000. All fair value
calculations have been double checked for accuracy and found to be correct. Prepare the journal
entry or entries to record the acquisition on Tonys’ books.
3. Prepare Tony’s balance sheet for (1) and (2) above immediately following the merger. 4.
Determine the following amounts immediately following the merger for requirement (1) and (2): A.
Total assets;
B. Total liabilities;
C. Additional paid-in capital (share premium);
D. Retained earnings (accumulated profit or loss); and
E. Stockholders’/Shareholders’ equity;

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