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Lucy's Company acquires Watervault, Inc., by issuing 40,000 shares of $1 par common stock with a market price of $25 per share on the acquisition date and paying $125,000 cash. The assets and liabilities on Watervault's balance sheet were valued at fair values except equipment that was undervalued by $300,000. There was also an unrecorded patent valued at $40,000, as well as an unrecorded trademark valued at $75,000. In addition, the agreement provided for additional consideration, valued at $60,000, if certain earnings targets were met. The pre-acquisition balance sheets for the two companies at acquisition date are presented below.
Lucy's Company
Watervault, Inc.
Cash
$300,000
$260,000
Accounts receivable
250,000
135,000
Inventory
254,000
275,000
Property, plant, and equipment
2,300,000
356,500
$3,104,000
$1,026,500
Accounts payable
$45,000
$37,500
Salaries and taxes payable
450,000
46,000
Notes payable
500,000
Common stock
60,000
Additional paid-in capital
950,000
106,500
Retained earnings
909,000
326 500
Question 1: What amount of goodwill was recorded in the acquisition?
a. $0
b. $217,000
c. $277,000
d. $692,000
Financial Statement Analysis and Preparation
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