On July 31, 2020, Wildhorse Company paid $2,850,000 to acquire all of the common stock of...
On July 31, 2020, Wildhorse Company paid $2,850,000 to acquire
all of the common stock of Conchita Incorporated, which became a
division (a reporting unit) of Wildhorse. Conchita reported the
following balance sheet at the time of the acquisition.
|
Current assets |
$750,000 |
Current liabilities |
$600,000 |
|||
|---|---|---|---|---|---|---|
|
Noncurrent assets |
2,550,000 |
Long-term liabilities |
500,000 |
|||
|
Total assets |
$3,300,000 |
Stockholders’ equity |
2,200,000 |
|||
|
Total liabilities and stockholders’ equity |
$3,300,000 |
It was determined at the date of the purchase that the fair value
of the identifiable net assets of Conchita was $2,640,000. Over the
next 6 months of operations, the newly purchased division
experienced operating losses. In addition, it now appears that it
will generate substantial losses for the foreseeable future. At
December 31, 2020, Conchita reports the following balance sheet
information.
| Current assets |
$480,000 |
||
| Noncurrent assets (including goodwill recognized in purchase) |
2,540,000 |
||
| Current liabilities |
(700,000 |
) |
|
| Long-term liabilities |
(500,000 |
) |
|
| Net assets |
$1,820,000 |
Finally, it is determined that the fair value of the Conchita
Division is $1,850,000.
Compute the amount of goodwill recognized, if any, on July 31, 2020.
Homework Answers
Answer :
| Goodwill = Cost of division - identifiable assets | ||
| Cost of division | 2850000 | |
| Value of identifiable assets | 2640000 | |
| Goodwill | 210000 |
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