On January 1, 2016 Gearty Corporation acquired 100% of Olinto Corporation. Geart

Question

On January 1, 2016 Gearty Corporation acquired 100% of Olinto Corporation. Gearty Corp. paid $900,000 for the acquisition of all of Olinto’s stock. On the date of acquisition Olinto’s assets and liabilities equaled their book value except for land and equipment. The land had a fair value that was $20,000 less than its book value. The fair value of Olinto Corp.’s equipment was $100,000 greater than its book value. The equipment has a remaining life of 8 years.

Gearty’s Stockholder’s Equity is as follows: Common stock $360,000; Additional paid in capital $270,000; Retained earnings $950,000.

Olinto’s Stockholder’s Equity is as follows: Common stock $200,000; Additional paid in capital $270,000; Retained earnings $300,000.

REQUIRED:

Calculate the amount of Goodwill or Gain that resulted from the acquisition.

Prepare the workpaper eliminating journal entries.

Explanation / Answer

purchase consideration =                900000

value of olinto stockholders equity = 770000

excess amount paid as goodwill      = 130000

+ loss on fair value of land                   20000

total amount to goodwill                      150000

less excess fair value of equipment    80000

Net Value of goodwill    70000                       

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