Question

Blackfish Company purchases 100% of Tautog Company on Jan 1, 2018 for $1,200,000 in cash. On the day of the purchase, Tautog had the following net assets:

                                                               Book Value                  Fair Value                    Life

Cash, received                                     $100,000                     $100,000

Equipment                                          375,000                       450,000                       3 years

Land                                                    200,000                       150,000

Building (net)                                      500,000                       580,000                       5 years

Payable                                               $300,000                     $200,000                    1 year

Blackfish Net Assets                            $875,000                     1,080,000

Answer the following:

A. Prepare a schedule showing how to allocate the difference in fair value given up by Blackfish and what is received from Tautog

B. Determine the amount of excess amortization for 2018.

C. Assume that the purchase was a merger.

D. Record the purchase on the books of Blackfish

Answer 1

Requirement 1:
Particulars	Amount
Fair value of consideration paid	$1,200,000
Less: Book value of net assets acquired	$875,000
Excess of fair value over book value	$325,000
Particulars	Book Value	Fair Value	Allocation
Less: Allocation of excess fair value	A	B	(B−A)
Equipment	$375,000	$450,000	$75,000
Land	$200,000	$150,000	($50,000)
Buildings	$500,000	$580,000	$80,000
Payables	($300,000)	($200,000)	$100,000
Excess fair value allocated to identifiable net assets			$205,000
Add: Allocated to goodwill ($1,200,000 − $1,080,000)			$120,000
Total excess of fair value over book value			$325,000
Requirement 2:
Annual amortization of excess fair value		Useful life	Amortization
Equipment ($450,000 − $375,000)	$75,000	3	$25,000
Buildings ($580,000 − $500,000)	$80,000	5	$16,000
Payables ($200,000 − $300,000)	($100,000)	1	($100,000)
Total			($59,000)
Requirement 3 and 4:
Account Title	Debit	Credit
Cash	$100,000
Equipment	$450,000
Land	$150,000
Buildings	$580,000
Goodwill	$120,000
Payables		$200,000
Cash		$1,200,000