On June 30, 2013, Sampras Company reported the following account balances: On June 30, 2013, Pelham paid
Question:
On June 30, 2013, Pelham paid $300,000 cash for all assets and liabilities of Sampras, which will cease to exist as a separate entity. In connection with the acquisition, Pelham paid $10,000 in legal fees. Pelham also agreed to pay $50,000 to the former owners of Sampras contingent on meeting certain revenue goals during 2014. Pelham estimated the present value of its probability adjusted expected payment for the contingency at $15,000.
In determining its offer, Pelham noted the following pertaining to Sampras:
¢ It holds a building with a fair value $40,000 more than its book value.
¢ It has developed a customer list appraised at $22,000, although it is not recorded in its financial records.
¢ It has research and development activity in process with an appraised fair value of $30,000.
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 Pelham's accounting entry to record the combination with Sampras.
Step by Step Answer:
Fundamentals of Advanced Accounting
ISBN: 978-0077667061
5th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik