On June 30, 2015, Wisconsin, Inc., issued $200,200 in debt and 19,300 new shares
ID: 2488327 • Letter: O
Question
On June 30, 2015, Wisconsin, Inc., issued $200,200 in debt and 19,300 new shares of its $10 par value stock to Badger Company owners in exchange for all of the outstanding shares of that company. Wisconsin shares had a fair value of $40 per share. Prior to the combination, the financial statements for Wisconsin and Badger for the six-month period ending June 30, 2015, were as follows:
Note: Parentheses indicate a credit balance.
Wisconsin also paid $36,200 to a broker for arranging the transaction. In addition, Wisconsin paid $47,800 in stock issuance costs. Badger’s equipment was actually worth $780,000, but its patented technology was valued at only $299,200.
What is the goodwill. Please help. is it 66,000?
On June 30, 2015, Wisconsin, Inc., issued $200,200 in debt and 19,300 new shares of its $10 par value stock to Badger Company owners in exchange for all of the outstanding shares of that company. Wisconsin shares had a fair value of $40 per share. Prior to the combination, the financial statements for Wisconsin and Badger for the six-month period ending June 30, 2015, were as follows:
Explanation / Answer
Goodwill is the amount that is excess of purchase consideration over the total of the assets and liabilities of the company that is being acquired.
The fair market value of the assets and liabilities are taken. However, patents are not included as it is a separately identifiable asset.
Incidental costs incurred are also considered while calculating the purchase consideration.
Purchase Consideration Wisconsin is
Debt - $200,200
19,300 shares of $10 par value (FMV @$40 per share) = 19,300 * $40 = $772,000
Brokerage costs = $36,200
Stock issuance costs = $47,800
Total Purchase consideration = $200,200 + $772,000 + $36,200 + $47,800 = $1,056,200
Fair Market value of Assets and Liabilities of Badger is
Cash = $86,000
Receivables and inventory = $252,000
Equipment (net) = $780,000
Liabilities = $512,000
Patented technology is not considered
Total will be $86,000 + $252,000 + $780,000 - $512,000 = $606,000
Goodwill = $1,056,200 - $606,000 = $450,200
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