CMA Study Group

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  • 1.  Goodwill

    Posted 02-21-2020 02:35 PM

    Mikey Corporation takes control over Pauley Corporation on July 1. The book value and fair value of Pauley's accounts on that date (prior to creating the combination) follow, along with the book value of Mikey's accounts (negative numbers show credit balances):

    Mikey Book Values Pauley Book Values Pauley Fair Values
    Revenue $ 391,000 $ 203,400
    Expenses 266,000 125,200
    Retained earnings (1/1) 203,000 234,800
    Cash and receivables 219,000 93,900 $ 93,900
    Inventory 297,000 227,000 273,000
    Patented technology (net) 360,000 281,700 313,000
    Land 630,000 313,000 352,000
    Building and equipment (net) 156,500 117,500 117,500
    Liabilities 845,100 563,400 548,000
    Common stock 469,500 109,550
    Additional paid-in capital 15,700 47,000

    Assume that Mikey issues 15,000 shares of common stock with a $10 par value and a $45 fair value to obtain all of Pauley's outstanding stock. How much goodwill should be recognized?



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    Syed Yousuf Jamal

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  • 2.  RE: Goodwill

    Posted 02-22-2020 09:01 AM
    D



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    Mohammed Swalih K
    Student
    Kottakkal
    India
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  • 3.  RE: Goodwill

    Posted 02-22-2020 10:31 AM
    Cost paid Fair value of Stocks       15,000X 45 =  675,000
    Fair Value of Net Assets Acquired                          601,400
    Goodwill                                                                        73,600

    Fair Value of Net assets = Total net assets at Fair value excluding Goodwill of acquired entity  if any minus liabilities 










  • 4.  RE: Goodwill
    Best Answer

    Posted 02-22-2020 12:12 PM
    Hi Jamal,

    Goodwills equals the excess of the fair value of the consideration transferred over the fair value of the net of  Identifiable assets acquired and liabilities assumed.

    Consideration transferred: 15000 shares x $45  = $675000

    minus : (add all assets of Pauley's accounts fair value and deduct the liability​) = $601400

    Goodwill $73600


    Thanks


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    Siraj Paneru
    Accountant
    Revere MA
    United States
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  • 5.  RE: Goodwill

    Posted 02-22-2020 01:19 PM
    Just in case we get an essay question or something that's still not quite clear to me:
    In this transaction, an equity investment in the other company, does Mikey still keep a separate set of books and Goodwill only shows up on the consolidated statements? 
    Would the journal entry in Mikey's books be:
    Investment in Pauley  $675,000
               Common Stock  $150,000
               APIC                  $525,000

    What would be the entry in Pauley's books?

    Thank you,
    Rebecca





  • 6.  RE: Goodwill

    Posted 02-23-2020 07:16 AM
    I think if 100% acquisition  the acquired entity is dissolved.Merger?





  • 7.  RE: Goodwill

    Posted 02-23-2020 07:22 AM
    I think the acquired entity  is dissolved and the assets and liabilities  will be assumed by acquirer .not sure about it.







  • 8.  RE: Goodwill

    Posted 02-23-2020 12:23 PM
    Or subsidiary.  Subsidiary is "A corporation that is controlled, directly or indirectly, by another corporation. The usual condition for control is ownership of a majority of the outstanding voting stock."
    Merger is "The combining of two or more companies."

    Still curious how this transaction is reported on Pauley's books.
    Thank you,

    Rebecca