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Determine the amount of goodwill in the purchase price

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Reference no: EM131764963

Question - The Eaton Manufacturing Company decided to expand further by purchasing the Ball Company. The balance sheet of Ball Company as of December 31, 2013 was as follows:

Ball Company Balance Sheet 12/31/13

Assets Liabilities & Equity

Cash $  212,500

Accounts payable  $ 325,000

Receivables 450,000

Common stock 800,000

Inventory 275,000

Retained earnings 837,500

Plant assets (net) 1,025,000

Total assets $1,962,500

Total equities $1,962,500

An appraisal, agreed to by the parties, indicated that the book values and fair market values of the net assets were the same except for inventory which had a fair market value of $350,000 and the plant assets which had a fair market value of $1,225,000. The agreed purchase price was $2,100,000, and this amount was paid in cash.

Shortly after the acquisition, the newly acquired Company (a reporting unit) started experiencing operating losses due to unexpected competition which will continue. At December 31, 2014, the book value of the reporting unit was $2,000,000, the fair value of the reporting unit was $1,900,000 and the fair value of the identifiable net assets within the reporting unit were $1,800,000.

REQUIRED:

Determine the amount of goodwill in the purchase price of $2,100,000.

Determine the impairment loss (if any) to be recorded on December 31, 2014.

Reference no: EM131764963

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