Reference no: EM132588330
ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $450,000 in Cash on July 1, 2019. On the date, the balance sheets of each of these companies were as follows:
ABC123 Inc DEF456 Inc
Cash and Short-Term Securities $900,000 $200,000
Inventory $ 50,000 $120,000
Plant and Equipment (net) $350,000 $150,000
Goodwill$ - $ 80,000
Total Assets $1,300,000 $550,000
Current Liabilities $ 180,000 $160,000
Bonds Payable $ 400,000 $100,000
Common Shares $ 500,000 $200,000
Retained Earnings $ 220,000 $ 90,000
Total Liabilities and Equity $1,300,000 $550,000 (respectively)
On that date, the fair values of DEF456 Assets and Liabilities were as follows:
Cash and Short-Term Securities$200,000
Inventory$ 90,000
Plant and Equipment (net)$250,000
Current Liabilities$160,000
Bonds Payable$ 88,000
In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively.
Question 1: Calculate the amount of Goodwill arising from this combination.
Question 2: Assume instead that the fair values of Inventory and Plant and Equipment were $25,000 and $490,000 respectively, calculate the amount of Goodwill arising from this combination.