# 10-3 Semtech & 10-6 Wolfson Corporation: Acquisiton costs

10-3
Semtech Manufacturing purchased land and building for \$4 million. In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and building:
Title insurance \$16,000
Legal fees for drawing the contract 5,000
Pro-rated property taxes for the period after acquisition 36,000
State transfer fees 4,000
An independent appraisal estimated the fair values of the land and building, if purchased separately, at \$3.3 and \$1.1 million, respectively. Shortly after acquisition, Semtech spent \$82,000 to construct a parking lot and \$40,000 for landscaping.
Required
1. Determine the initial valuation of each asset Semtech acquired in these transactions.
2. Repeat requirement one, assuming that immediately after acquisition, Semtech demolished the building. Demolition costs were \$250,000, and the salvaged materials were sold for \$6,000. In addition Semtech spent \$86,000 clearing up and grading the land in preparation for the construction of a new building.

10-6
On March 31, 2011, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for \$17,000,000 in cash. The book values and fair values of Barney's asset and liabilities were as follows:
Book Value Fair Value
Receivables \$1,300,000 \$1,100,000
Property, plant and equipment 8,000,000 9,400,000
Intangible assets 200,000 1,200,000
Required
Calculate the amount paid for goodwill

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• E10-3.docx
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Solution Summary

The solutions gives you detailed computations, comments to assist you and the journal entry to find goodwill.

\$2.19
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Carol Sargent, PhD

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Active since 2010

BSc, University of Virginia
MSc, University of Virginia
PhD, Georgia State University

Responses 2394 | Videos 11

"Thank you kindly :)"

"I have tried jiving the numbers and still cant get them to work on your spreadsheet... all answers were wrong 1a, 1b, and 2 does have a reconciliation.... 3 are incorrect as well, I cannot figure out what I'm doing wrong the sheet looks good?"

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"Hello Carol, I just started working on this problem and I came across a question that I need clarification for, NPV was calculated as \$2074.00. is this per year for 8 years? I am very sorry that I may be bothering you but I tried to figure it out on my own however couldn't do it. Thanks"

"Hello Carol, if I ask you kindly to clarify the tax benefit of depreciation on the excel. it is probably my lack of excel knowledge. how did you calculate? as well as the after tax operating cash flows (I see that it is 1.00-0.35 but don't know why? I just want to learn as well. Thanks"

Extracted Content from Question Files:

• E10-3.docx

10-3

Semtech Manufacturing purchased land and building for \$4 million. In addition to the purchase price,
Semtech made the following expenditures in connection with the purchase of the land and building:

Title insurance \$16,000

Legal fees for drawing the contract 5,000

Pro-rated property taxes for the period after acquisition 36,000

State transfer fees 4,000

An independent appraisal estimated the fair values of the land and building, if purchased separately, at
\$3.3 and \$1.1 million, respectively. Shortly after acquisition, Semtech spent \$82,000 to construct a
parking lot and \$40,000 for landscaping.

Required

1. Determine the initial valuation of each asset Semtech acquired in these transactions.
2. Repeat requirement one, assuming that immediately after acquisition, Semtech demolished the
building. Demolition costs were \$250,000, and the salvaged materials were sold for \$6,000. In
addition Semtech spent \$86,000 clearing up and grading the land in preparation for the
construction of a new building.

10-6

On March 31, 2011, Wolfson Corporation acquired all of the outstanding common stock of Barney
Corporation for \$17,000,000 in cash. The book values and fair values of Barneyâ€™s asset and liabilities
were as follows:

Book Value Fair Value

Receivables \$1,300,000 \$1,100,000

Property, plant and equipment 8,000,000 9,400,000

Intangible assets 200,000 1,200,000

Required

Calculate the amount paid for goodwill