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Recognized goodwill

Please see attached question.

Hill, Inc. obtains control over Loring, Inc. on July 1. The book value and fair value of Loring's accounts on that date (prior to creating the combination) follow, along with the book value of Hill's accounts.

Hill's Loring Loring
Book Values Book Values Fair Values

Revenues.....................$ (250,000) $(130,000)
Expenses..................... 170,000 80,000
Retained Earnings, 1/1...... (130,000) (150,000)
Cash & Receivables..........140,000 60,000 $60,000
Inventory.......................190,000 145,000 175,000
Patented technology (net)....230,000 180,000 200,000
Land.............................400,000 200,000 225,000
Buildings & equipment (net)100,000 75,000 75,000
Liabilities....................... (540,000) (360,000) (350,000)
Common Stock.................(300,000) (70,000)
Additional paid-in capital..... (10,000) (30,000)

Assume that Hill issues 10,000 shares of common stock with a $5 par value and a $40 fair value to obtain of all of Loring's outstanding stock. How much goodwill should be recognized?

a) 0
b) $15,000
c) $35,000
d) $100,000

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Solution Preview

Hill, Inc. obtains control over Loring, Inc. on July 1. The book value and fair value of Loring's accounts on that date (prior to creating the combination) follow, along with the book value of Hill's accounts.

Hill's Loring Loring
Book Values Book Values Fair Values

Revenues.....................$ (250,000) ...

Solution Summary

Answer: b) $15,000

The net fair values of the assets and liabilities of Loring total $385,000. Hill issues 10,000 shares with fair value per share of $40 per share totaling $400,000. The excess of fair value of shares over the fair value of assets and liabilities acquired is $15,000 which is recognized as goodwill.

$2.19