Harry acquires 100% of David on January 1, 2010 by issuing 10,000 shares with par value $1 and fair value $70. In addition, Harry agrees to pay an additional $100,000 if David earns $50,000 net income in 4 years. David will be operated as a separate subsidiary of Harry. At acquisition date, there is a 80% probability of this occurring. On January 1, 2010, Harry had net assets with book value of $400,000 and fair value of $500,000. At that date, David had net assets with book value of $200,000 and fair value of $150,000. At December 31, 2012, Harry has net assets with book value of $600,000 and fair value of $800,000. At that date, David has net assets with book value of $300,000 and fair value of $400,000. Assume that all differences between book value and fair value relate to Land. a. How much is goodwill at January 1, 2010 (show calculation). b. How much is goodwill at December 31, 2012 (assume no impairment)
Harry acquires 100% of David on January 1, 2010 by issuing 10,000 shares with par value $1 and fair value $70. In addition, Harry agrees to pay an additional $100,000 if David earns $50,000 net income in 4 years. David will be operated as a separate subsidiary of Harry. At acquisition date, there is a 80% probability of this occurring. On January 1, 2010, Harry had net assets with book value of $400,000 and fair value of $500,000. At that date, David had net assets with book value of $200,000 and fair value of $150,000. At December 31, 2012, Harry has net assets with book value of $600,000 and fair value of $800,000. At that date, David has net assets with book value of $300,000 and fair value of $400,000. Assume that all differences between book value and fair value relate to Land. a. How much is goodwill at January 1, 2010 (show calculation). b. How much is goodwill at December 31, 2012 (assume no impairment)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:2. Harry acquires 100% of David on January 1, 2010 by issuing 10,000 shares with par value $1 and
fair value $70. In addition, Harry agrees to pay an additional $100,000 if David earns $50,000
net income in 4 years. David will be operated as a separate subsidiary of Harry. At acquisition
date, there is a 80% probability of this occurring. On January 1, 2010, Harry had net assets with
book value of $400,000 and fair value of $500,000. At that date, David had net assets with
book value of $200,000 and fair value of $150,000. At December 31, 2012, Harry has net assets
with book value of $600,000 and fair value of $800,000. At that date, David has net assets with
book value of $300,000 and fair value of $400,000. Assume that all differences between book
value and fair value relate to Land.
a. How much is goodwill at January 1, 2010 (show calculation).
b. How much is goodwill at December 31, 2012 (assume no impairment)
Expert Solution
Goodwill at January 1
1.CALCULATION OF GOOD AT JAN 2010
a.
Cost of purchase:-
Equity Issue :(10000*70) 700000
cash (100000*80%) 80000
Total Purchase price 780000
b. Calculation of value of harry
Net Assets value 150000
Good will(a-b)
=780000-150000
=630000
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