Arizona Corp. had the following account balances at 12/1/19: Receivables: $96,000; Inventory: $240,000; Land: $720,000; Building: $600,000; Liabilities: $480,000; Common stock: $120,000; Additional paid-in capital: $120,000; Retained earnings, 12/1/19: $840,000; Revenues: $360,000; and Expenses: $264,000. Several of Arizona's accounts have fair values that differ from book value. The fair values are:Land — $480,000; Building — $720,000; Inventory — $336,000; and Liabilities — $396,000. Inglewood Inc. acquired all of the outstanding common shares of Arizona by issuing 20,000 shares of common stock having a $6 par value, but a $66 fair value. Stock issuance costs amounted to $12,000. Imagine you are the decision maker at Inglewood Inc. Prepare a fair value allocation and goodwill schedule at the date of the acquisition. Determine in 525- words whether you would encourage acquiring Arizona Corp? Be sure to include your rationale.

Goodwill is an intangible asset that is linked to the purchase of one enterprise by another. It represents value that might provide the company making the purchase a competitive advantage. Goodwill is the portion of the purchase price over the sum of the net fair values of all the assets acquired in the acquisition and the liabilities assumed in the transaction.Calculation of Fair Value Allocation and Goodwill:Amount$Amount$Purchase Consideration1,320,000Less Book value of net assets acquiredreceivables96,000inventory240,000Land720,000Building600,000Liabilities480,0001,176,000Excess fair value over book value144,000Less Fair value adjustmentsLand-240,000Building120,000Inventory96,000Liabilities84,00060,000Goodwill84,000In the example mentioned, there is goodwill that is positive, namely Gain on Bargain Purchase on Acquiring Arizona Corp. When the acquisition price is less than the company's fair market worth, a gain on bargain purchase occurs. Since there would be profit from the acquisition of Arizona Corp., Inglewood Inc. made the right and wise decision to buy Arizona Corp.Book Value of Arizona Corporation= Assets - LiabilitiesGood to acquire Arizona as its value is = $ 11, 76,000

Answered: Imagine you are the decision maker at…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Arizona Corp. had the following account balances at 12/1/19:

Receivables: $96,000; Inventory: $240,000; Land: $720,000; Building: $600,000; Liabilities: $480,000; Common stock: $120,000; Additional paid-in capital: $120,000; Retained earnings, 12/1/19: $840,000; Revenues: $360,000; and Expenses: $264,000.

Several of Arizona's accounts have fair values that differ from book value. The fair values are:

Land — $480,000; Building — $720,000; Inventory — $336,000; and Liabilities — $396,000.

Inglewood Inc. acquired all of the outstanding common shares of Arizona by issuing 20,000 shares of common stock having a $6 par value, but a $66 fair value. Stock issuance costs amounted to $12,000.

Imagine you are the decision maker at Inglewood Inc.

Prepare a fair value allocation and goodwill schedule at the date of the acquisition.

Determine in 525- words whether you would encourage acquiring Arizona Corp? Be sure to include your rationale.

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