The Acquisition

This sample simulation task was released by the AICPA in 2015 for CPA FAR.

FB Corp. prepares its financial statements in accordance with IFRS. FB acquired 100% of the outstanding common stock of Skarlet, Inc., for $5,500,000. The purchase price included $300,000 to reimburse the former shareholders of Skarlet for legal fees incurred to complete the acquisition. The company also agreed to pay the seller an additional $1,500,000 if Skarlet generated $5,000,000 in net earnings during the first 2 years after acquisition. At the acquisition date, the fair value of the contingent consideration was $750,000.

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For each of the acquisition items, enter the amount that should be reflected in the line item on FB’s consolidated financial statements as of the acquisition date. Enter debit balances as positive values and credit balances as negative values. If an item is not included in any line item, enter zeros in each cell of the associated row.

Acquisition Item Carrying Amount at Acquisition Date Fair Value at Acquisition Date Profit or Loss Other Comprehensive Income Total Assets, Excluding Goodwill Total Liabilities
1. Property, plant, and equipment $4,000,000 $4,200,000        
2. In-process R&D costs 0 1,320,000        
3. Legal fees 300,00 300,000        
4. Noncompete agreement 0 550,000        
5. Bonds payable 475,000 450,000        
6. Estimated post-acquisition restructuring costs 0 265,000        
7. Contingent consideration 0 750,000        
Total        

In the cell below, enter the amount of goodwill recorded as of the acquisition date. Enter the amount as a positive value.

8. Goodwill  

 

Please note: the accounting treatment for this transaction is the same under U.S. GAAP and IFRS.

 

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