Carson, Inc., acquires 80 percent of the outstaniding common stock of Gardena corporation on January 1, 2020, in exchange for $900,000 cash. At the acquisition date, Gardena's total fair value, including the noncontrolling interest, was assessed at $1,125,000. Also at the acquisition date, Gardena's book value was $690,000.
Carson, Inc., acquires 80 percent of the outstaniding common stock of Gardena corporation on January 1, 2020, in exchange for $900,000 cash. At the acquisition date, Gardena's total fair value, including the noncontrolling interest, was assessed at $1,125,000. Also at the acquisition date, Gardena's book value was $690,000.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 8MC
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Carson, Inc., acquires 80 percent of the outstaniding common stock of Gardena corporation on January 1, 2020, in exchange for $900,000 cash. | ||||||||||||
At the acquisition date, Gardena's total fair value, including the noncontrolling interest, was assessed at $1,125,000. Also at the acquisition date, | ||||||||||||
Gardena's book value was $690,000. | ||||||||||||
Several individual items on Gardena's financial records had fair values that differed from their book values as follows: | ||||||||||||
Book value | Fair value | |||||||||||
Trademark (indefinite life) | $360,000 | $383,000 | ||||||||||
Property and equipment (net, 8-year remaining useful life) | 290,000 | 330,000 | ||||||||||
Patent (14-year remaining useful life) | 132,000 | 272,000 | ||||||||||
For internal reporting purposes, Carson, inc., employs the equity method to account for this investment. The following account balances are for the year | ||||||||||||
ending December 31, 2020, for both companies. At year-end, there were no intra-entity receivables or payables. | ||||||||||||
Carson | Gardena | |||||||||||
Revenues | ($1,400,000) | ($825,000) | ||||||||||
Cost of goods sold | 774,000 | 395,750 | ||||||||||
328,000 | 36,250 | |||||||||||
Amortization expense | 0 | 28,000 | ||||||||||
Equity in income of Gardena | ($280,000) | 0 | ||||||||||
Net income | ($578,000) | ($365,000) | ||||||||||
($1,275,000) | ($530,000) | |||||||||||
Net income | ($578,000) | ($365,000) | ||||||||||
Dividends declared | 300,000 | 50,000 | ||||||||||
Retained earnings (12/31/2020) | ($1,553,000) | ($845,000) | ||||||||||
Current assets | $860,000 | $432,250 | ||||||||||
Investment in Gardena | 1,140,000 | 0 | ||||||||||
Trademark | 240,000 | 360,000 | ||||||||||
Property and equipment (net) | 1,030,000 | 253,750 | ||||||||||
Patents | 0 | 104,000 | ||||||||||
Total assets | 3,270,000 | 1,150,000 | ||||||||||
Accounts payable | ($142,000) | ($145,000) | ||||||||||
Common stock | ($300,000) | ($120,000) | ||||||||||
Additional paid-in capital | ($1,275,000) | ($40,000) | ||||||||||
Retained earnings (12/31/2020) | ($1,553,000) | ($845,000) | ||||||||||
Total liabilities and equities | ($3,270,000) | ($1,150,000) | ||||||||||
1. What is the total fair value of Gardena ? | Hint: |
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