CASE

BNet Company wants to expand its operations and plans to acquire Compusport a company that complements its operations on 31 December 2020. In what follows you can find the accounts reported by both companies on that date. In addition the estimated fair values of Compusports assets and liabilities are included.

	BNet Company	Compusport
	Book Values December 31	Book Values December 31	Fair Values December 31
Current assets	$1,100,000	$300,000	$300,000
Computers and equipment (net)	1,300,000	400,000	600,000
Capitalized software (net)	500,000	100,000	1,200,000
Customer contracts	-0-	-0-	700,000
Notes payable	300,000	200,000	250,000
Net assets	$2,600,000	$600,000	$2,550,000
Common stock -$10 par value	$1,600,000
Common stock - $5 par value		$100,000
Additional paid-in capital	40,000	20,000
Retained earnings, 1/1	870,000	370,000
Dividends paid	110,000	10,000
Revenues	1,000,000	500,000
Expenses	800,000	380,000
Owners equity 12/31	$2,600,000	$600,000
Retained earnings, 12/31	960,000	480,000

Additional information:

1. BNet acquires Compusport on 31 December 2020 by issuing 26,000 shares of $10 par value common stock valued at $100 per share.

2. In creating this combination, BNet pays legal and accounting fees of $40,000 for a third party for their assistance in arranging the transaction.

3. BNet promises to pay an additional $83,200 to the former owners if Compusport generates earnings in excess of $300,000 during the next annual period. BNet estimates a 25% probability that the $83,200 contingent payment will be required. A discount rate of 4% to represent the time value of money is applied. The fair value approach of the acquisition method views such contingent payments as part of the consideration transferred.

Required:

Assuming that BNet will retain separate legal incorporation and maintain its own accounting systems.

1. Calculate the fair value of the consideration transferred to invest in Compusport.

2. Prepare the journal entry for BNet to record its investment in Compusport using the acquisition

method.

3. Determine the fair value in excess of book value for BNet's acquisition date investment in Compusport.

4. Prepare a worksheet to consolidate the accounts of the two companies.