Reference no: EM132483283

Point 1. Johnson paid $325,000 to acquire 100% of Willis Corporation in a statutory merger. Johnson also agreed to pay the shareholders of Willis $0.40 in cash for every dollar in income from continuing operations of the combined entity over $75,000 in the FIRST years following acquisition. Johnson projects that there is a 20% (35%, 45%) probability that the income from continuing operations for the year is $65,000 ($90,000, $120,000 respectively). Johnson uses a discount rate of 7%.

Information for Willis Corporation immediately before the merger was as follows:

                                  Book value       Fair value

Current assets                  40,000         50,000

Plant assets                     120,000        70,000

Liabilities                         50,000         45,000

Previously unreported items identified as belonging to Willis:

Fair value

Contracts under negotiation with potential customers   15,000

In-process research and development                       12,000

Skilled workforce                                                 23,000

Recent favorable press reports on Willis                   2,000

Proprietary databases                                         8,000

Question 1: Determine the goodwill to be reported in this acquisition.