Road Corporation acquired all of Conger Corporation's votingshares on January 1, 20X2, for $487,000. At that time Congerreported common stock outstanding of $87,000 and retained earningsof $148,000. The book values of Conger's assets and liabilitiesapproximated fair values, except for land, which had a book valueof $87,000 and a fair value of $107,000, and buildings, which had abook value of $240,000 and a fair value of $408,000. Land andbuildings are the only noncurrent assets that Conger holds.
Required: a. Compute the amount of goodwill at the date of acquisition.
Road Corporation acquired all of Conger Corporation's votingshares on January 1, 20X2, for $487,000. At that time Congerreported common stock outstanding of $87,000 and retained earningsof $148,000. The book values of Conger's assets and liabilitiesapproximated fair values, except for land, which had a book valueof $87,000 and a fair value of $107,000, and buildings, which had abook value of $240,000 and a fair value of $408,000. Land andbuildings are the only noncurrent assets that Conger holds. |
| Required: | |
| a. | Compute the amount of goodwill at the date of acquisition. |
Related questions
Grant Company acquired all of Bedford Corporation's assets andliabilities on January 1, 20X2, in a business combination. At thatdate, Bedford reported assets with a book value of $642,000 andliabilities of $376,000. Grant noted that Bedford had $43,000 ofcapitalized research and development costs on its books at theacquisition date that did not appear to be of value. Grant alsodetermined that patents developed by Bedford had a fair value of$140,000 but had not been recorded by Bedford. Except for buildingsand equipment, Grant determined the fair value of all other assetsand liabilities reported by Bedford approximated the recordedamounts. In recording the transfer of assets and liabilities to itsbooks, Grant recorded goodwill of $107,000. Grant paid $534,000 toacquire Bedford's assets and liabilities. If the book value ofBedford's buildings and equipment was $348,000 at the date ofacquisition, what was their fair value? |
Prime Company holds 90 percent of Lane Companyâs stock, acquiredon January 1, 20X2, for $247,500. On the date of acquisition, Lanereported retained earnings of $65,000 and $125,000 of common stockoutstanding, and the fair value of the noncontrolling interest was$27,500. Prime uses the fully adjusted equity method in accountingfor its investment in Lane. |
| Trial balance data for the twocompanies on December 31, 20X7, are as follows: |
| Prime Company | Lane Company | ||||||||||||
| Item | Debit | Credit | Debit | Credit | |||||||||
| Cash and AccountsReceivable | $ | 143,000 | $ | 58,000 | |||||||||
| Inventory | 245,000 | 98,000 | |||||||||||
| Land | 105,000 | 90,000 | |||||||||||
| Buildings andEquipment | 520,000 | 165,000 | |||||||||||
| Investment in LaneCompany Stock | 295,050 | ||||||||||||
| Cost of GoodsSold | 165,000 | 88,000 | |||||||||||
| Depreciation andAmortization | 26,000 | 19,000 | |||||||||||
| Other Expenses | 23,000 | 13,000 | |||||||||||
| DividendsDeclared | 68,000 | 37,500 | |||||||||||
| AccumulatedDepreciation | $ | 308,850 | $ | 36,500 | |||||||||
| AccountsPayable | 52,000 | 22,000 | |||||||||||
| Bonds Payable | 150,000 | 60,000 | |||||||||||
| Common Stock | 340,000 | 125,000 | |||||||||||
| RetainedEarnings | 411,800 | 155,000 | |||||||||||
| Sales | 280,000 | 170,000 | |||||||||||
| Income fromSubsidiary | 47,400 | ||||||||||||
| Total | $ | 1,590,050 | $ | 1,590,050 | $ | 568,500 | $ | 568,500 | |||||
| AdditionalInformation |
| 1. | At the date of combination, the book values and fair values ofLaneâs separately identifiable assets and liabilities were equal.The full amount of the increased value of the entity was attributedto goodwill. At December 31, 20X6, the management of Prime reviewedthe amount attributed to goodwill as a result of its purchase ofLane stock and recognized an impairment loss of $20,000. No furtherimpairment occurred in 20X7. |
| 2. | On January 1, 20X5, Lane soldland for $5,000 that had cost $16,000 to Prime. |
| 3. | On January 1, 20X6, Prime sold to Lane equipment that it hadpurchased for $75,600 on January 1, 20X1. The equipment has a total14-year economic life and was sold to Lane for $70,200. Bothcompanies use straight-line depreciation. |
| 4. | Intercompany receivables andpayables total $7,000 on December 31, 20X7. |
| Required: |
| a. | Prepare a reconciliation between the balance in PrimeâsInvestment in Lane Company Stock account reported on December 31,20X7, and Laneâs book value. (Enter the proportion of stockheld as a fraction (i.e., 0.75), not in percent.) |
