Utilize the nol carryforward

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Freeze Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2018, these licensing agreements have a fair value of $870,000 and represent Freeze's sole asset. Although Freeze currently has no liabilities, the company has a $150,000 net operating loss (NOL) carryforward because of recent operating losses.

On January 1, 2018, Ivy, Inc., acquired all of Freeze voting stock for $1,100,000. Ivy expects to extract operating synergies by integrating Freeze's software into its own products. Ivy also hopes that Freeze will be able to receive a future tax reduction from its NOL. Assume an applicable federal income tax rate of 35 percent.

  1. If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Ivy recognize from the acquisition?
  2. If there is a less than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Ivy recognize from the acquisition?

Reference no: EM132431303

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