Question

LO4 32. Compute the amount of acquired Goodwill, including contingent earnings and bargain purchase Assume you are charged with assigning fair values related to a 53.040,000 acquisition. You determine that the fair value of the net identifiable tangible assets is $1,480,000. You also conclude that the pur- chase included a Customer List with a fair value at $272,000. 4. How much Goodwill will you record in this acquisition, and how is the Goodwill accounted for subsequent to the acquisition? b. Continuing from part (a), now also assume the purchase and sale agreement requires the payment of an additional 740,000 if the subsidiary achieves a certain level of earings. You estimate the fair value of that contingent earnings clause in the agreement to be $176,000. How does this additional information affect your computation of Goodwill? c. This part of the exercise is independent of parts (a) and (b). Assume the purchase price is $3,040,000 and that fair value of the net identifiable tangible assets is $1,480,000. You also conclude that the purchase included a Customer List that you value at $512,000 and a Patent valued at $1,520,000. How much Goodwill will you record in this acquisition?

Answer 1

(a)

Goodwill

=Purchase Consideration - Net Identifiable Assests - Customer List

=$3040,000 - $1480,000- $272,000

=$ 1288,0000

b ) Contingent Earnings should be valued at Fair Value and are added to Purchase Consideration

This will Impact Good will in below manner :

Revised Goodwill

=$ 3216,000- $1480,000- $272,000

=$1464,000

C) Patent are Intangible Assets and thus not included while Goodwill Calculation as Goodwill = Purchase Consideration less Net Tangible Assets

GOODWILL

= Purchase Consideration - Customer List - Net Tangible Assests

=$3040,000- $512,000- $1480,000

=$ 1224,000