On December 31, 2017, Pace Co. paid $3,000,000 to Sanders Corp. shareholders to acquire 100% of the net assets of Sanders Corp. Pace Co. also agreed to pay former Sanders shareholders$200,000 in cash if certain earnings projections were achieved over the next two years. Based on probabilities of achieving the earnings projections, Pace estimated the fair value of this promise to be $150,000. Pace paid $10,000 in legal fees and incurred $10,000 in internal cash costs related to management's time to complete the transaction. Exhibit 8.25 provides the book and fair values of Sanders Corp. at the date of acquisition.

REQUIREDa. Record the merger using the financial statement effects template or journal entries.

b. How would the financial effects change if the cash paid was $2,000,000?

 
 

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Cash Exhibit 8.25 Sanders Corp. Book and Fair Values as of December 31, 2017 (Problem 8.22) Sanders Corp. Book Values at 12/31/17 $ 400,000 500,000 1,200,000 1,600,000 0 0 $ 3,700,000 Sanders Corp. Fair Values at 12/31/17 $ 400,000 500,000 1,600,000 2,000,000 300,000 200,000 $ 5,000,000 Receivables Inventory PP&E (net) Unpatented technology In-process R&D Total Assets Cash Exhibit 8.25 Sanders Corp. Book and Fair Values as of December 31, 2017 (Problem 8.22) Sanders Corp. Book Values at 12/31/17 $ 400,000 500,000 1,200,000 1,600,000 0 0 $ 3,700,000 Sanders Corp. Fair Values at 12/31/17 $ 400,000 500,000 1,600,000 2,000,000 300,000 200,000 $ 5,000,000 Receivables Inventory PP&E (net) Unpatented technology In-process R&D Total Assets

Answer rating: 100% (QA)

Recording the Merger a Using the Financial Statement Effects Template Account Debit Credit Cash 3000... View the full answer