Pappy Inc. purchased 80% of the outstanding voting shares of Sappy Corp. for $360,000 cash on...

Pappy Inc. purchased 80% of the outstanding voting shares of Sappy Corp. for $360,000 cash on July 1, 2015. Immediately before the acquisition, Pappy and Sappy reported the following: Statements of financial position As at July 1, 2015 Pappy Sappy Book value Book value Fair value Cash $500,000 $245,000 $245,000 Investments at amortized cost 7,000 24,000 26,000 Accounts receivable 60,000 40,000 40,000 Inventory 120,000 45,000 55,000 Equipment (net) 290,000 80,000 72,000 Patents 10,000 90,000 193,000 Total assets $987,000 $524,000 Current liabilities $ 95,000 $160,000 $160,000 Bonds payable 0 70,000 75,000 Common shares 400,000 180,000 Retained earnings 492,000 114,000 Total liabilities and equity $987,000 $524,000 The equipment and patents both have a remaining useful life of five years at the date of acquisition. Straight-line depreciation and amortization is used. Assume that the investment has not been impaired.

What is the amount of goodwill using the fair value enterprise (FVE) method at July 1, 2015?

a) $ 43,200 b) $ 44,000 c) $ 54,000 d) $258,000

What amount would be reported for patents on the consolidated SFP at July 1, 2015?

a) $100,000 b) $164,400 c) $182,400 d) $203,000

Solutions

Expert Solution

Computation of Fair value excess of book value

	Assets	FV	BV	Excess
	Investments	$ 26,000	$ 24,000	$ 2,000
	Inventory	$ 55,000	$ 45,000	$ 10,000
	Equipment	$ 72,000	$ 80,000	$ (8,000)
	Patents	$ 193,000	$ 90,000	$ 103,000
	Excess for assets	$ 107,000
	Liabilities
	Bonds payable	$ 75,000	$ 70,000	$ 5,000
	Excess for liabilities	$ 5,000
	Excess for Net assets FV over BV	$ 102,000
Add	Common stock	$ 180,000
Add	Retained earnings	$ 114,000
	Total value of subsidiary	$ 396,000
	Share of P in S in FV for 80%	$ 316,800
	Total considerationp paid	$ 360,000
	Goodwill	$ 43,200

Option a is correct.

Value of Patent on consolidated F/S = $10,000 + $193,000

= $203,000.

Option d is correct.

For any clarification, please comment. Kindly Up Vote!

ekkarill92 answered 1 year ago

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