Question

On June 1, Cline Co. paid $1,071,500 cash for all of the issued and outstanding common stock of Renn Corp. The carrying amounts for Renn's assets and liabilities on June 1 follow: Cash Accounts receivable Capitalized software costs Goodwill Liabilities $ 168,000 298,500 376,000 193,000 (196,000) $ 839,500 Net assets On June 1, Renn's accounts receivable had a fair value of $209,000. Additionally, Renn's in-process research and development was estimated to have a fair value of $249,000. All other items were stated at their fair values. On Cline's June 1 consolidated balance sheet, how much is reported for goodwill?

Answer 1

Answer(1) Goodwill to be reported on Cline's June 1 Consolidated Balance Sheet Consolidation transferred (Fair Value) $1,071,500 Cash $168,000 Accounts Receivable 209,000 Capitalised Software Cost 376,000 Research and Development 249,000 Liabilities $(196,000) Fair Value of Net Identifiable Assets Acquired $806,000 Goodwill $265,500 Answer(2) Selling Price of Inventory Less: Cost of good sold Gross Profit $155,000 108,500 $46,500 Gross Profit rate = $46,500 / $155,000 30% Inventory remaining at Year End $22,300 Gross Profit Rate 30% Unrealized Gain Ownership 30% of $22,300 $6,690 Intra Entity Unrealized Gain Deferred 40% of $6,690 $2,676