Explore BrainMass

Explore BrainMass

    Recognized goodwill

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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

    © BrainMass Inc. brainmass.com June 3, 2020, 10:18 pm ad1c9bdddf
    https://brainmass.com/business/mergers-and-acquisitions/recognized-goodwill-225057

    Attachments

    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

    ADVERTISEMENT