ACC-405Module 1 Practice Problems and Solutions

1) Acquisition with contingent consideration (liability-classified)

On January 1, 2026, Lumo Co. acquired 100% of Kibo Co. Lumo paid $910,000 cash and agreed to additional cash contingent consideration if Kibo’s postcombination income targets are met in 2026–2027. The fair value of the contingent consideration at acquisition was $140,000 (liability).

Fair values of Kibo’s identifiable assets and liabilities on Jan 1, 2026:

• Accounts receivable (gross) $120,000

• Allowance for doubtful accounts $8,000

• Inventory $210,000

• Land $180,000

• Buildings $520,000

• Equipment $300,000

• Accounts payable $145,000

• Notes payable $190,000

At Dec 31, 2026, the fair value of the contingent consideration increased to $165,000.
At Dec 31, 2027, the target was not met; fair value became $0.

Required:

1. Prepare Lumo’s acquisition-date journal entry (Jan 1, 2026).

2. Record the Dec 31, 2026 adjustment for the contingent consideration.

3. Record the Dec 31, 2027 adjustment when the fair value becomes zero.

2) Acquisition with bargain purchase

On April 1, 2026, Rangi Inc. acquired 100% of Mara Ltd. for $620,000 cash. The fair values of Mara’s identifiable net assets total $690,000.

Required:

1. Compute whether there is goodwill or a bargain purchase gain.

2. Prepare Rangi’s acquisition-date journal entry (ignore transaction costs).

3) Acquisition with noncontrolling interest (NCI) at fair value

On January 1, 2026, Taji Co. purchased 80% of Nuru Co. for $880,000. The fair value of the NCI at acquisition was $210,000. The fair value of Nuru’s identifiable net assets at acquisition was $980,000.

Required:

1. Compute goodwill using the fair value method.

2. Prepare the acquisition-date entry on Taji’s books.

4) Step acquisition (equity method to control)

On January 1, 2025, Kali Co. purchased 30% of Safi Co. for $240,000 and used the equity method.
On January 1, 2026, Kali acquired an additional 50% of Safi for $520,000, obtaining control.

On Jan 1, 2026:

• The fair value of Safi (100%) is $1,020,000

• Kali’s 30% interest has a fair value of $306,000

• Safi’s identifiable net assets fair value is $860,000

Required:

1. Determine the remeasurement gain or loss on Kali’s previously held 30% interest.

2. Compute goodwill at the step acquisition date.

3. Prepare Kali’s journal entry on Jan 1, 2026 to record the business combination.

5) Acquisition-related costs and stock issuance costs

On March 1, 2026, Zuri Co. acquired 100% of Asha Co. by issuing 40,000 shares of Zuri common stock. The shares had a market price of $18 on the acquisition date. Zuri also paid:

• Legal/consulting fees related to the acquisition: $52,000

• Stock issuance costs: $16,000

The fair value of Asha’s identifiable net assets was $690,000.

Required:

1. Compute consideration transferred.

2. Compute goodwill (if any).

3. Prepare the acquisition-date entries, including proper treatment of acquisition-related costs and stock issuance costs.

6) Measurement period adjustment

On January 1, 2026, Imara Co. acquired 100% of Pendo Co. for $780,000 cash. Provisional fair values on Jan 1, 2026 included:

• Customer relationships (intangible): $90,000

On June 30, 2026 (within the measurement period), new information indicates the acquisition-date fair value of customer relationships should have been $130,000 (an increase of $40,000). Assume no amortization has been recorded yet.

Required:

1. Prepare the measurement period adjustment entry on June 30, 2026.

2. Explain (briefly) what accounts are affected (no numbers beyond the entry).

7) Contingent consideration classified as equity

On January 1, 2026, Kifaru Co. acquired 100% of Nia Co. for $600,000 cash plus a promise to issue 10,000 shares of Kifaru stock if Nia meets a revenue milestone in 2026. On the acquisition date, the arrangement meets equity classification, and the fair value of the equity-classified contingent consideration is $120,000.

At Dec 31, 2026, the fair value of that contingent consideration (still equity-classified) is $150,000.

Required:

1. Record the acquisition-date entry including equity-classified contingent consideration.

2. Determine and record any Dec 31, 2026 entry related to changes in fair value (if applicable under equity classification).

8) Recognizing identifiable intangible assets and goodwill

On May 1, 2026, Haki Co. acquired 100% of Jua Co. for $1,150,000. The fair values of Jua’s identifiable net assets (excluding intangibles not on Jua’s books) are $980,000.

Additional identifiable intangibles at acquisition:

• Trademark (indefinite-lived) $90,000

• Customer list (10-year life) $130,000

Required:

1. Compute goodwill.

2. Prepare the acquisition-date entry recognizing all identifiable intangibles.

9) Deferred tax effect from fair value adjustments

On January 1, 2026, Sanaa Co. acquired 100% of Tamu Co. for $900,000. A major fair value adjustment relates to equipment:

• Equipment fair value exceeds tax basis by $200,000

• Tax rate is 25%

Identifiable net assets fair value before deferred taxes is $820,000.

Required:

1. Compute the deferred tax liability created by the equipment fair value adjustment.

2. Recompute the net identifiable assets after deferred taxes.

3. Compute goodwill.

4. Prepare the acquisition-date entry including the deferred tax liability.

10) Acquisition of less than 100% with NCI measured at proportionate share

On July 1, 2026, Maji Co. purchased 70% of Kora Co. for $560,000. Kora’s identifiable net assets at fair value are $760,000. Assume NCI is measured at proportionate share of net assets.

Required:

1. Compute the NCI amount at acquisition under the proportionate share method.

2. Compute goodwill under this method.

3. Prepare Maji’s acquisition-date entry.

11) Contingent consideration settled in cash after remeasurement

On January 1, 2026, Nuru Co. acquired 100% of Tia Co. for $700,000 cash plus contingent consideration (liability) with acquisition-date fair value $90,000.

Fair value of contingent consideration:

• Dec 31, 2026: $110,000

• March 31, 2027: settled in cash for $105,000

Required:

1. Prepare the Jan 1, 2026 acquisition-date entry.

2. Prepare the Dec 31, 2026 remeasurement entry.

3. Prepare the March 31, 2027 settlement entry (including any gain/loss at settlement, if applicable).