Question

On June 1, Cline Co. paid $800,000 cash for all of the issued and outstanding common stock of Renn Corp. The carrying amounts for Renn’s assets and liabilities on June 1 follow: Cash $150,000 Accounts receivable 180,000 Capitalized software costs 320,000 Goodwill 100,000 Liabilities (130,000) Net assets $620,000 On June 1, Renn’s accounts receivable had a fair value of $140,000. Additionally, Renn’s in-process research and development was estimated to have a fair value of $200,000. All other items were stated at their fair values. On Cline’s June 1 consolidated balance sheet, how much is reported for goodwill?

Answer 1

Answer:

Goodwill = 460.000

Explanation:

The Net Book Value of Renn Corp. on June 1 is 620,000

The Fair value of the net Assets of Renn Corp. on June 1 is 460,000. This is calculated as follows:

To the Book Value we will take of the amount of accounts receivable (180,000) and capitalized software costs (320,000); and we will add the fair value of those assets (140,000 and 200,000)

Fair value of the net Assets = 620,000 - 180,000 + 140,000 - 320,000 + 200,000 = 460,000

And difference betewn the Fair value and the purchase price is Goodwill:

Goodwill = Purchase Price - Fair value of the net Assets

Goodwill = 800,000 - 460,000

Goodwill = 340,000