Fowler Manufacturing Company purchased Blye Company on December 31, 2018. The balance sheet of Blye Company on the acquisition date was as follows: Blye Company Balance Sheet December 31, 2018 Assets Liabilities and Equities Cash $ 210,000 Accounts payable $ 325,000 Receivables 450,000 Inventory 275,000 Common stock 800,000 Plant assets (net) 1,025,000 Retained earnings 835,000 Total assets $1,960,000 Total liabilities and equities $1,960,000 Appraisers estimated the fair market value of Blye’s inventory at $320,000 and the fair value of the plant assets at $1,425,000. The fair market value of the receivables and payables is equal to the amounts reported on the balance sheet. The agreed purchase price was $2,300,000, and this amount was paid in cash to the previous owners of Blye Company. Determine the amount of goodwill (if any) recorded by Fowler on December 31, 2018. Fowler put Blye Company up for sale later in the year. On December 31, 2019, the best offer it has received for purchasing Blye is $2,200,000. The book and fair values of Blye’s assets and liabilities remain unchanged on December 31, 2019 relative to December 31, 2018. Compute the loss on impairment of goodwill recorded by Fowler on December 31, 2019 (if any).
Fowler Manufacturing Company purchased Blye Company on December 31, 2018. The
Blye Company
Balance Sheet
December 31, 2018
Assets Liabilities and Equities
Cash $ 210,000 Accounts payable $ 325,000
Receivables 450,000
Inventory 275,000 Common stock 800,000
Plant assets (net) 1,025,000
Total assets $1,960,000 Total liabilities and equities $1,960,000
Appraisers estimated the fair market value of Blye’s inventory at $320,000 and the fair value of the plant assets at $1,425,000. The fair market value of the receivables and payables is equal to the amounts reported on the balance sheet. The agreed purchase price was $2,300,000, and this amount was paid in cash to the previous owners of Blye Company.
- Determine the amount of
goodwill (if any) recorded by Fowler on December 31, 2018. - Fowler put Blye Company up for sale later in the year. On December 31, 2019, the best offer it has received for purchasing Blye is $2,200,000. The book and fair values of Blye’s assets and liabilities remain unchanged on December 31, 2019 relative to December 31, 2018. Compute the loss on impairment of goodwill recorded by Fowler on December 31, 2019 (if any).
Step 1
In business combination, when one entity acquires another entity, and the purchase consideration paid for the business acquired exceeds the net assets, then it will generate goodwill in the business combination acquired.
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