On July 31, 2017, Sheridan Company paid $2,750,000 to acquire all of the common
ID: 2432497 • Letter: O
Question
On July 31, 2017, Sheridan Company paid $2,750,000 to acquire all of the common stock of Conchita Incorporated, which became a division of Sheridan. Conchita reported the following balance sheet at the time of the acquisition.
$740,000
$510,000
2,450,000
410,000
$3,190,000
2,270,000
$3,190,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,500,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2017, Conchita reports the following balance sheet information.
$470,000
2,360,000
(620,000
)
(420,000
)
$1,790,000
It is determined that the fair value of the Conchita Division is $1,850,000. The recorded amount for Conchita’s net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value $110,000 above the carrying value.
Compute the amount of goodwill recognized, if any, on July 31, 2017.
$740,000
Current liabilities$510,000
Noncurrent assets2,450,000
Long-term liabilities410,000
Total assets$3,190,000
Stockholders’ equity2,270,000
Total liabilities and stockholders’ equity$3,190,000
Explanation / Answer
Amount of goodwill identifiable as on july 31 2017 =Amount paid - fair value of net asset
= 2,750,000- 2,500,000
= $ 250,000
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