On July 1, TruData Company issues 10,000 shares of its common stock with a $5 par value and a $40 fair value in exchange for all of Webstat Company's outstanding voting shares. Webstat's pre- combination book and fair values are shown along with book values for TruData's accounts as follows. Revenues (1/1 to 7/1) Expenses (1/1 to 7/1) Retained earnings, 1/1 Cash and receivables Inventory ... Patented technology (net) Land .... Buildings and equipment (net) .... Liabilities Common stock .... Additional paid-in capital TruData Book Values $(250,000) 170,000 (130,000) 140,000 190,000 230,000 400,000 100,000 (540,000) (300,000) (10,000) Webstat Book Values $(130,000) 80,000 (150,000) 60,000 145,000 180,000 200,000 75,000 (360,000) (70,000) (30,000) Webstat Fair Values $ 60,000 175,000 200,000 225,000 75,000 (350,000)

On July 1, TruData Company issues 10,000 shares of its common stock with a $5 par value and a $40 fair value in exchange for all of Webstat Company's outstanding voting shares. Webstat's pre- combination book and fair values are shown along with book values for TruData's accounts as follows. Revenues (1/1 to 7/1) Expenses (1/1 to 7/1) Retained earnings, 1/1 Cash and receivables Inventory ... Patented technology (net) Land .... Buildings and equipment (net) .... Liabilities Common stock .... Additional paid-in capital TruData Book Values $(250,000) 170,000 (130,000) 140,000 190,000 230,000 400,000 100,000 (540,000) (300,000) (10,000) Webstat Book Values $(130,000) 80,000 (150,000) 60,000 145,000 180,000 200,000 75,000 (360,000) (70,000) (30,000) Webstat Fair Values $ 60,000 175,000 200,000 225,000 75,000 (350,000)

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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• Which of the following is incorrect? O Straight line amortization of goodwill is simpler than goodwill impairment testing. Straight line amortization is considered by many to provide little if any useful information to readers of financial statements. Straight line amortization can only be used under U.S. GAAP when impairment testing is impossible. Goodwill impairment testing provides companies with more opportunities to engage in earnings management than does straight line amortization.
if the value implied by the purchase price of an acquired company exceeds the fair values of the identifiable net assets, the excess should be a. allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain b. allocated to reduce current and longlived assets c. allocated to gain on acquisition d. allocated to goodwill
If a company develops in-house a highly profitable treatment and secures a patent for it, the asset will most likely appear on its balance sheet as an intangible asset (goodwill). True O False
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