Compute the amount of acquired Goodwill, including contingent earnings and bargain purchase Assume that you are charged with assigning fair values related to a $3,800,000 acquisition. You determine that the fair value of the net identifiable tangible assets is $1,850,000. You also conclude that the purchase included a Customer List with a fair value at $340,000. a. How much Goodwill will you record in this acquisition? $1,610,000 ✓ b. Continuing from part (a), now also assume that the purchase and sale agreement requires the payment of an additional $925.000 if the subsidiary achieves a certain level of earnings. You estimate the fair value of that contingent earnings clause in the agreement to be $220,000. How does this additional information affect your computation of Goodwill? The amount of Goodwill recorded is $ 1,830,000 c. This part of the exercise is independent of parts (a) and (b). Assume that the purchase price is $3,800.000 and that fair value of the net identifiable tangible assets is $1,850.000. You also conclude that the purchase included a Customer List that you value at $640,000 and a Patent valued at $1,900,000. How much Goodwill will you record in this acquisition? The amount of Goodwill recorded is: $ 590,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Compute the amount of acquired Goodwill, including contingent earnings and bargain purchase
Assume that you are charged with assigning fair values related to a $3,800,000 acquisition. You determine that the fair value of the net identifiable tangible assets is $1,850,000. You also conclude that the purchase included a Customer List with a fair value at $340,000.
a. How much Goodwill will you record in this acquisition?
$ 1,610,000 ✓
b. Continuing from part (a), now also assume that the purchase and sale agreement requires the payment of an additional $925,000 if the subsidiary achieves a certain level of earnings. You estimate the fair value of that contingent earnings clause in the agreement to be $220,000.
How does this additional information affect your computation of Goodwill?
The amount of Goodwill recorded is $
1,830,000
c. This part of the exercise is independent parts (a) and (b). Assume that the purchase price is $3,800,000 and that fair value of the net identifiable tangible assets is $1,850,000. You also conclude that the purchase included a Customer List that you value at $640,000 and a Patent
valued at $1,900,000. How much Goodwill will you record in this acquisition?
The amount of Goodwill recorded is: $ 590,000

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Step 1 Introduction

The business combination is described as when one entity controls the other entity through the acquisition of a substantial portion of equity interest or acquires its net assets. The combination can be in the form of mergers, acquisitions, amalgamations, takeovers, etc. Such arrangements are made in order to avoid competition or obtain larger-scale economies, etc.

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