Question
Alpha Corporation's net assets have fair values as described below: Fair Value Current assets $400,000 Land $1,200,000 Buildings and equipment $1,500,000 Loans payable $(500,000) Beta
Alpha Corporation's net assets have fair values as described below:
Fair Value | |
Current assets | $400,000 |
Land | $1,200,000 |
Buildings and equipment | $1,500,000 |
Loans payable | $(500,000) |
Beta Company pays $4,500,000 for Alpha Corporation and records the acquisition as a merger. Beta Company determines that identifiable intangibles valued at $2,000,000, not previously reported on Alpha’s books, are also recognized as acquired assets.
Required: a. Prepare a schedule to calculate the gain on acquisition. b. Prepare Beta’s journal entry to record the merger. c. Now assume Beta determines that Alpha Corporation has unreported contingent liabilities, reportable at the date of acquisition following GAAP, with a fair value of $100,000. Recalculate the gain on acquisition.
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