Reference no: EM132760374

Question: Deng Enterprises, Inc. made a strategic choice to grow by acquiring one if its main competitors, Aordkian Corp. In the acquisition, Deng paid $12 million in cash. Aordkian's balance sheet on the date of the transaction showed total assets - total liabilities (net assets) of $8 million.

A closer examination of Aordkian's balance sheet and appraisals of fair values of assets and liabilities by the independent firm of Bua, Young, and Owens, LLP revealed that all of Aorkian's assets and liabilities' values approximated fair values with the following exceptions:

- The book value of Aordkian's net receivables was $1.5 million, but the fair value is estimated to be $1.3 million.

- The book value of net PPE was $7 million, but the fair value is estimated to be $8.5 million.

- The book value of intangible assets was $400,000, but the estimated fair value is $1.4 million.Required:

- Calculate the amount that Deng would record as goodwill on its books as a result of this acquisition.

- Briefly explain how Deng will be required to evaluate the value of the goodwill calculated in (1) when preparing future balance sheets.