Question

                                                Williams                                               Roberts

Cash                                      160,000                                                 50,000

Inventory                            550,000                                                 160,000

Equipment                          1,500,000                                             670,000

      Totals                             2,210,000                                             880,000

Totals Liabilities 740,000 280,000

c/s $20 par                          600,000                                                 300,000

other contr cap                 375,000                                                 105,000

retained earnings             495,000                                                 195,000

       totals                             2,210,000                                             880,000

inventory has a FMV of 170,000 for Roberts and the equipment has a FMV of 715,000. The book value and FMV of liabilities are the same. Assuming Williams wishes to acquire Roberts for cash in an asset acquisition, determine the following cutoff amounts:

1. Purchase price above which Williams would record goodwill?
2. Purchase price which Williams would record a 60,000 gain?
3. Purchase price below which Williams would obtain a bargain?
4. Purchase price which Williams would record 85,000 of goodwill?

Answer 1

ROBERTS ASSETS NET MARKET VALUE:
	AMOUNT
Assets:
Cash	50000
Inv.	170000
Equip	715000
Less:Liabilities	-280000
Net Assets Market Value	655000
Req 1) Purchse price above which Williams would record goodwill = B/V of assets - Liabilities = 880000-280000= 600000
Req 2) Purchse price which Williams would record a 60000 gain = (B/V of assets - Liabilities)-60000 = 880000-280000-60000= 540000
Req 3) Purchse price below which Williams would obtain a bargain = Net Assets Market Value = 655000
Req 4) Purchse price which Williams would record 85000 of goodwill = (B/V of assets - Liabilities) + 85000= 880000-280000 + 85000= 685000