Question

In: Accounting

Johnson paid $325,000 to acquire 100% of Willis Corporation in a statutory merger. In addition, Johnson...

Johnson paid $325,000 to acquire 100% of Willis Corporation in a statutory merger. In addition, Johnson also agreed to pay the shareholders of Willis $0.40 in cash for every dollar in income from continuing operations of the combined entity over $75,000 in the first three years following acquisition. Johnson projects that there is a 20% (45%, 35%) probability that the income from continuing operations in the first three years following acquisition is $65,000 ($90,000, $115,000 respectively). Johnson uses a discount rate of 7%.

Information for Willis Corporation immediately before the merger was as follows:

Book value

Fair value

Current assets

   40,000

50,000

Plant assets

120,000

70,000

Liabilities

   50,000

45,000

Previously unreported items identified as belonging to Willis:

Fair value

Contracts under negotiation with potential customers

15,000

In-process research and development

12,000

Skilled workforce

23,000

Recent favorable press reports on Willis

   2,000

Proprietary databases

   8,000
  1. Show your determination of the contingent consideration.
  2. Show your determination the goodwill to be reported in this acquisition.

Solutions

Expert Solution

ekkarill92 answered 3 weeks ago
Next > < Previous

Related Solutions

How does a corporation acquire another company through merger, buying assets or stock?
How does a corporation acquire another company through merger, buying assets or stock?
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp....
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp. The investment represented 30% of the total shares outstanding of Pets Corp. and gave Johnson Company the ability to exert significant influence upon the operations of Pets Corp. During the year ended December 31, 2018, Pets Corp. paid dividends of $1.10 per share (declared and paid on November 12, 2018) and reported income of $245 million. The market value of Pets Corp. stock at...
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp....
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp. The investment represented 30% of the total shares outstanding of Pets Corp. and gave Johnson Company the ability to exert significant influence upon the operations of Pets Corp. During the year ended December 31, 2018, Pets Corp. paid dividends of $1.10 per share (declared and paid on November 12, 2018) and reported income of $245 million. The market value of Pets Corp. stock at...
Garrett Corporation paid $300,000 to acquire land, buildings, and equipment. At the time of acquisition, Garrett...
Garrett Corporation paid $300,000 to acquire land, buildings, and equipment. At the time of acquisition, Garrett paid $20,000 for an appraisal, which revealed the following values: land, $140,000; buildings, $175,000; and equipment, $35,000. Required: 1. What cost should the company assign to the land, buildings, and equipment, respectively? 2. Assume that Garrett uses IFRS and chooses to use the revaluation model to value its property, plant, and equipment. At the end of the year, the book value of the land,...
On January 1, 2017, Liu Corporation paid $241,960 to acquire bonds of Singh Investment Corp with...
On January 1, 2017, Liu Corporation paid $241,960 to acquire bonds of Singh Investment Corp with a par value of $240,000. The annual contract rate on the bonds is 6% and interest is paid semiannually on June 30 and December 31. The bonds mature after three years. The market rate of interest was 5.7%. Liu Corporation intends to hold the bonds until maturity. Required: 1. Prepare an amortization schedule for the investment showing only 2017. (Do not round intermediate calculations....
Basu owns 100% of an S corporation. This year, the corporation paid Basu a salary of...
Basu owns 100% of an S corporation. This year, the corporation paid Basu a salary of $111,000. Basu's share of S corporation income for the year was $44,400. Assume that this is Basu's only income for the year. Compute any resulting payroll and self-employment income taxes. Assume the Social Security rate is 6.2% and Medicare rate is 1.45%. If an amount is zero, enter "0". If required, round your answers to nearest dollar. a.   What amount is subject to employee...
Problem 2: Goodwill Calculation HB paid $2.50 per share to acquire 100% of PN’s equity shares...
Problem 2: Goodwill Calculation HB paid $2.50 per share to acquire 100% of PN’s equity shares on 1 September 2009. At that date PN’s statement of financial position showed the following balances with equity: $000 Equity shares of $1 each 180 Share premium 60 Retained earnings 40 PN’s net asset values were the same as their book values, except for land which was valued at $70,000 more than its book value. HB directors estimate that any goodwill arising on the...
AUS Corporation paid $160,000 to acquire all of Horany Company's net assets. Horany reported assets with...
AUS Corporation paid $160,000 to acquire all of Horany Company's net assets. Horany reported assets with a book value of $120,000 and fair value of $196,000 and liabilities with a book value and fair value of $46,000 on the date of combination. AUS also paid $6,000 to a search firm for finder's fees related to the acquisition. What amount AUS Corporation while recording its investment in Horany Company will record as goodwill?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT