On June 1, Cline Co. paid $969,000 cash for all of the issued and outstanding co

Question

On June 1, Cline Co. paid $969,000 cash for all of the issued and outstanding common stock of Renn Corp. The carrying amounts for Renn’s assets and liabilities on June 1 follow:

On June 1, Renn’s accounts receivable had a fair value of $190,000. Additionally, Renn’s in-process research and development was estimated to have a fair value of $258,000. All other items were stated at their fair values. On Cline’s June 1 consolidated balance sheet, how much is reported for goodwill?

Multiple Choice

a. $330,000.

b. $21,000.

c. $95,000.

d. $159,000.

Cash $ 247,000 Accounts receivable 254,000 Capitalized software costs 330,000 Goodwill 116,000 Liabilities (215,000 ) Net assets $ 732,000

Explanation / Answer

Computation of Goodwill to be reported on consolidated balance sheet Particulars $ $ Total consideration paid to acquire common stock of Renn Corporation 969000 Cash 247000 Accounts Receivables 190000 Capitalized software costs 330000 Research and Development 258000 Liabilities -215000 Fair Value of net identifiable assets acquired (969000-(247000+190000+330000+258000-215000) 810000 Goodwill (969000-810000) 159000 Therefore, the right answer is option (d) $ 159000

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