Question

X Corporation purchased a 45% interest in the common stock of Y Company for $3,500,000 on January 1, 2016, when the book value of Ivy's net stockholder's equity was $7,000,000. Y's book values equaled their fair values except for the following items:

                                                    Book                      Fair

                                                   Value                   Value               Difference

Inventories                         $450,000               $600,000                $ 150,000

Land                                      100,000                 450,000                 350,000

Building-net                        400,000                 200,000              (200,000)

Equipment-net                    350,000                 400,000                   50,000

Required:

Calculate the FMV of the assets at the time of purchase and goodwill, then prepare a schedule to allocate any excess purchase cost to identifiable assets and goodwill.

Answer 1

FMV Calculation

Asset Type	Book Value	Fair Value	Difference
Inventory	450,000	600,000	150,000
Land	100,000	450,000	350,000
Building - Net	400,000	200,000	(200,000)
Equipment - Net	350,000	400,000	50,000
	1,300,000	1,650,000	350,000
FMV of Asset at the time of Purchase
Book Value	7,000,000
Add: Difference in Fair value	350,000
Total FMV	7,350,000

Goodwill Calculation:

45% of FMV (i.e. 7,350,000)	3,307,500
Purchased Consideration	3,500,000
Goodwill Paid	192,500