Question

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

Receivables $ 83,900 Current liabilities $ (12,900 )
Inventory 70,250 Long-term liabilities (54,250 )
Buildings (net) 78,900 Common stock (90,000 )
Equipment (net) 24,100 Retained earnings (100,000 )
Total assets $ 257,150 Total liabilities and equities $ (257,150 )
On June 30, 2021, Princeton Company paid $316,500 cash for all assets and liabilities of Streeter, which will cease to exist as a separate entity. In connection with the acquisition, Princeton paid $12,700 in legal fees. Princeton also agreed to pay $63,800 to the former owners of Streeter contingent on meeting certain revenue goals during 2022. Princeton estimated the present value of its probability adjusted expected payment for the contingency at $20,100.
In determining its offer, Princeton noted the following pertaining to Streeter:
It holds a building with a fair value $43,100 more than its book value.
It has developed a customer list appraised at $25,200, although it is not recorded in its financial records.
It has research and development activity in process with an appraised fair value of $36,400. 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.
Prepare Princeton’s accounting entry to record the combination with Streeter. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1. First Entry Record the acquisition of Streeter company.
2. Second Entry Record the legal fees related to the combination.

Answer 1

1. Dr Receivables $ 83,900

Dr Inventory $70,250

Dr Building (net) $122,000

Dr Equipment (net) $24,100

Dr Customer list $25,200

Dr Capitalized R&D $36,400

Dr Goodwill $41,900

Cr Current liabilities $12,900

Cr Long-term liabilities $54,250

Cr Contingent obligation performance $20,100

Cr Acquisition cost $316,500

2. Dr Combination expense (Legal fees) $12,700

Cr Cash $12,700

Step-by-step explanation:

1. Preparation of the First Entry to Record the acquisition of Streeter company.

First step is to calculate Goodwill on Acquisition

Acquisition cost $316,500

Add Contingent obligation performance $20,100

Total Acquisition cost $336,600

Less Fair value of Streeter company:

Receivables $ 83,900

Inventory $70,250

Building (net) $122,000

($78,900+$43,100)

Equipment (net) $24,100

Customer list $25,200

Capitalized R&D $36,400

Current liabilities ($12,900 )

Long-term liabilities ($54,250 ) ($294,700)

Goodwill $41,900

($336,600-$294,700)

Now let prepare the First Entry to Record the acquisition of Streeter company.

Dr Receivables $ 83,900

Dr Inventory $70,250

Dr Building (net) $122,000

($78,900+$43,100)

Dr Equipment (net) $24,100

Dr Customer list $25,200

Dr Capitalized R&D $36,400

Dr Goodwill $41,900

Cr Current liabilities $12,900

Cr Long-term liabilities $54,250

Cr Contingent obligation performance $20,100

Cr Acquisition cost $316,500

(To record acquisition of Streeter Company)

2. Preparation of the Second Entry to Record the legal fees related to the combination

Dr Combination expense (Legal fees) $12,700

Cr Cash $12,700

(To record payment of Legal fees)