1. On January 1, Year 1, Pungent Corporation acquired 75% of Summer Corporation\
ID: 2575872 • Letter: 1
Question
1. On January 1, Year 1, Pungent Corporation acquired 75% of Summer Corporation's 200,000 outstanding common shares for $2,850,000. On January 1, the book value of Summer's net assets was $3,000,000. Book value equaled fair value for all of Summer's assets and liabilities except land, which had a fair value $200,000 greater than book value, and equipment, which had a fair value $150,000 greater than book value. On January 1, Year 1, Summer had a non-compete agreement with a fair value of $300,000. Compute the amount of goodwill (show your work) to be reported on Pungent Corporation's December 31, Year 1 balance sheet under U.S. GAAP?
2. List the 4 steps in applying the Acquisition method of accounting.
3. In a business combination accounted for as an acquisition, the appraised values of the identifiable assets acquired exceeded the acquisition price. Describe how the excess appraised valued should be reported?
4. Direct costs of a business combination, including finders’ fees and consulting fees, are recognized as expenses in the period incurred. True or False
Explanation / Answer
a)
Calculation of Goodwill :-
b)
Book Value of Net Assets 3,000,000 Excess Value of Land 200,000 Excess Vale of Equipment 150,000 Fair Value of non-compete agreement 300,000 Total Value (a) 3,650,000 % shareholding Acquired (b) 75% Value of shareholding Acquired (c)=(a*b) 2,737,500 Total Cost of Investment (d) 2,850,000 Value of Goodwill (d-c) 112,500Related Questions
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