Hardware, Inc. purchased 100% of the common shares of Software, Inc. for $470,00

Question

Hardware, Inc. purchased 100% of the common shares of Software, Inc. for $470,000 on 1/1/07. Software, Inc.'s balance sheet just before the purchase appears below:

Cash $ 90

Net fixed assets 220

Total assets 310

Liabilities 240

Stockholders' equity 70

Total liabilities and stockholders' equity: 310

The fair market value of Software's assets and liabilities were equal to their book values. Show calculations. 1) Compute the goodwill recognized by Hardware for the purchase.

2) How would goodwill appear on Hardware's financial statements?

3) Hardware has net income, excluding Software for 2007 of $150,000. Software has a net loss for 2007 of $10,000. Compute consolidated net income for 2007.

Explanation / Answer

cash 90 fixed assets 220 total assets 310 consideration paid 470 Goodwill 160 goodwill will appear under assets in Hardware's financial statements net income 150000 net loss of software -10000 consolidated net income 140000

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