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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The solutions gives you detailed computations, comments to assist you and the journal entry to find goodwill.
$2.19 
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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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"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"