Dawson Company paid $451,250 to acquire Good Company. In the negotiations it was

Question

Dawson Company paid $451,250 to acquire Good Company. In the negotiations it was agreed that a 5% return on net assets was normal for the industry. Good's FMV of net assets was $420,000 and excess earnings would be capitalized at 8%. What is Dawson's increase in expected annual net income from the Good Company acquisition? The cost of purchasing patent rights for a product that might otherwise have compedted with one of the purchaser's patented products should be: A)Amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition form the newly patented product. B)Amortized over the legal life of the purchased patent. C)Charged off in the current period D)Added to factory overhead and allocated to production of the purchaser's product Butler Co. acquires 3 patents from Gasol Corp. for a total of $900,000. The patents were carried on Gasol's books as follows:Patent A:$15,000;Patent B:$6,000 and Patent C:$9,000. When Butler acquired the patents their fair values were: Patent A:$60,000;Patent B:$720,000 and Patent C:$180,000. What amount should Gasol record Patent B? In January 2012, Findley Corporation purchased a patent for a new consumer product for $960,000. At the time of the purchase, the patent was valid for 15 years. Due to the competitive nature of the product, however, the patent product was estimated to have a useful life of only 10 years. During 2016 the product was permanently removed form the market under governmental order because of a potential health hazard present in the product. What amount should Findley charge to expense during 2016, assuming amortization is recorded at the end of each year?

Explanation / Answer

Ans;

One Company Paid for net assets =            451,250 FMV for Two companies net assets            420,000 Goodwill recognized              31,250 The 5% return on net assets was agreed: Expected annual net income from Two Company's Net Assets acquired(including goodwill ) =451250*5%=              22,563 So One compnay can expect increase in net income of   $22,563 from the acquisition Amount record for patent : 900000/30*6= $180,000

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