c. Under both methods how much is the cons On January 1, 2010 Adams pays $4 mill
ID: 2332264 • Letter: C
Question
c. Under both methods how much is the cons On January 1, 2010 Adams pays $4 million cash to acquire 100% of Baker in a transaction structured as an acquisition. At date of acquisition, Baker has book value of assets of $7 million and book value of liabilities of $4 million. In addition Baker has land on its books with a book value of $800,000 and a fair value of $500,000. a. How much is consolidated goodwill b. How does the answer to a. above differ if Adams paid $ 2 million c. Assume Adams pays $ 4 million cash and instead of Land, it is Note Payable that has the as 6. above fair value and book value. How much is consolidated goodwill How does the answer to c. above differ if Adams paid $ 2 million. d.Explanation / Answer
Answer 6(a):
As it is 100% acquisition ( there is no non-controlling interest):
Goodwill or Bargain Purchase Gain = Consideration paid – Identifiable assets acquired + Identifiable liabilities acquired
Consideration paid = $4,000,000
Identifiable assets acquired = Book value of assets - Book value of land + Fair value of land
= $7,000,000 - $800,000 + $500,000 = $6,700,000
Identifiable liabilities acquired = $4,000,000
Goodwill = $4,000,000 - $6,700,000 + $4,000,000
= $1,300,000
Answer b:
If Consideration paid = $2,000,000
Then Consideration paid – Identifiable assets acquired + Identifiable liabilities acquired
= $2,000,000 - $6,700,000 + $4,000,000
= - $700,000
In this case it would have been a bargain purchase and there would have been gain of $700,000
Answer C:
Consideration paid = $4,000,000
Identifiable assets acquired = $7,000,000
Identifiable liabilities acquired = $4,000,000 - $800,000 + $500,000 = $3,700,000
Goodwill = $4,000,000 - $7,000,000 + $3,700,000
= $700,000
Answer d:
Consideration paid = $2,000,000
Then,
Consideration paid – Identifiable assets acquired + Identifiable liabilities acquired = $2,000,000 - $7,000,000 + $3,700,000 = -$1,300,000
In this case this would have been bargain purchase and gain would have been = $1,300,000
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