Stockholders of Sarasota Company, Riverbed Company, and Pronghorn Company are considering alternative arrangements for a business...

Transcribed Image Text:

Stockholders of Sarasota Company, Riverbed Company, and Pronghorn Company are considering alternative arrangements for a business combination. Balance sheets and the fair values of each company's assets on October 1, 2024, were as follows: Sarasota Riverbed Pronghorn Assets $3,914,710 $7,569,800 $949,690 Liabilities $2,039,830 $2,214,160 $261,390 Common stock, $20 par value 1,992,600 1,800,580 543,840 Other contributed capital -0- 600,140 188,560 Retained earnings (deficit) (117,720) 2,954,920 (44,100) Total equities $3,914,710 $7,569,800 $949,690 Fair values of assets $4,236,780 $8,925,900 $1,287,160 Sarasota Company shares have a fair value of $54. A fair (market) price is not available for shares of the other companies because they are closely held. Fair values of liabilities equal book values. (a) Prepare a balance sheet for the business combination. Assume the following: Sarasota Company acquires all the assets and assumes all the liabilities of Riverbed and Pronghorn Companies by issuing in exchange 141,220 shares of its common stock to Riverbed Company and 39,720 shares of its common stock to Pronghorn Company. (List assets in order of liquidity. Enter negative account balance with negative sign preceding the number e.g. -5,125 or parentheses e.g. (5,125).) SARASOTA COMPANY Balance Sheet Assets $ $ Liabilities and Stockholders' Equity $ Assume, further, that the acquisition was consummated on October 1, 2024, as described above. However, by the end of 2025, Sarasota was concerned that the fair values of one or both of the acquired units had deteriorated. To test for impairment, Sarasota decided to measure goodwill impairment using the present value of future cash flows to estimate the fair value of the reporting units (Riverbed and Pronghorn). Sarasota accumulated the following data: Carrying Value of Identifiable Net Assets* Year 2055 Present Value of Future Cash Flows Fair Value Identifiable Net Assets Riverbed $6,455,700 $6,366,190 $6,376,190 Pronghorn $1,906,960 $1,210,760 $1,010,760 * Identifiable Net Assets do not include goodwill. Prepare the journal entry, if needed, to record goodwill impairment at December 31, 2025. Use FASB's simplified approach to test for goodwill impairment (assume that the qualitative test is satisfied or bypassed). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit Credit Stockholders of Sarasota Company, Riverbed Company, and Pronghorn Company are considering alternative arrangements for a business combination. Balance sheets and the fair values of each company's assets on October 1, 2024, were as follows: Sarasota Riverbed Pronghorn Assets $3,914,710 $7,569,800 $949,690 Liabilities $2,039,830 $2,214,160 $261,390 Common stock, $20 par value 1,992,600 1,800,580 543,840 Other contributed capital -0- 600,140 188,560 Retained earnings (deficit) (117,720) 2,954,920 (44,100) Total equities $3,914,710 $7,569,800 $949,690 Fair values of assets $4,236,780 $8,925,900 $1,287,160 Sarasota Company shares have a fair value of $54. A fair (market) price is not available for shares of the other companies because they are closely held. Fair values of liabilities equal book values. (a) Prepare a balance sheet for the business combination. Assume the following: Sarasota Company acquires all the assets and assumes all the liabilities of Riverbed and Pronghorn Companies by issuing in exchange 141,220 shares of its common stock to Riverbed Company and 39,720 shares of its common stock to Pronghorn Company. (List assets in order of liquidity. Enter negative account balance with negative sign preceding the number e.g. -5,125 or parentheses e.g. (5,125).) SARASOTA COMPANY Balance Sheet Assets $ $ Liabilities and Stockholders' Equity $ Assume, further, that the acquisition was consummated on October 1, 2024, as described above. However, by the end of 2025, Sarasota was concerned that the fair values of one or both of the acquired units had deteriorated. To test for impairment, Sarasota decided to measure goodwill impairment using the present value of future cash flows to estimate the fair value of the reporting units (Riverbed and Pronghorn). Sarasota accumulated the following data: Carrying Value of Identifiable Net Assets* Year 2055 Present Value of Future Cash Flows Fair Value Identifiable Net Assets Riverbed $6,455,700 $6,366,190 $6,376,190 Pronghorn $1,906,960 $1,210,760 $1,010,760 * Identifiable Net Assets do not include goodwill. Prepare the journal entry, if needed, to record goodwill impairment at December 31, 2025. Use FASB's simplified approach to test for goodwill impairment (assume that the qualitative test is satisfied or bypassed). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit Credit

Answer rating: 100% (QA)

To answer the given question thoroughly lets break it into steps Step 1 Preparing the balance sheet for Sarasota Company after acquisition 1 Calculati... View the full answer