Question

Pine acquires 100% of Sol for 3,202,298 in a tax-free business combination. The applicable income tax rate is 30%. Goodwill is not deductible for tax purposes. Based on the following information about the assets and liabilities of Sunfish, what amount should Porpoise record as goodwill for this acquisition on the date of acquisition?

	Old book basis	Old tax basis	Fair value
Cash	$400,000	$400,000	$400,000
Equipment, net of depreciation	500,000	200,000	750,000
Patents	0	0	2,000,000
Accounts payable	(300,000)	(300,000)	(300,000)
Deferred income taxes payable	(90,000)	NA	?
Notes payable	(200,000)	(200,000)	(230,000)

Answer 1

	Old book Base	Old tax Base	Fv	Diff DTL/(DTA) (old Tax base & Fv)
Cash	$400,000	$400,000	$400,000	-
Equipment, net of depreciation	500,000	200,000	750,000	250000
Patents	0	0	2,000,000	2,000,000
Accounts payable	(300,000)	(300,000)	(300,000)	-
Deferred income taxes payable	(90,000)	NA	(6,66,000)	-
Notes payable	(200,000)	(200,000)	(230,000)	(30000)
	3,10,000		19,54,000	22,20,000 * 30%
			NET DTL	6,66,000

Good Will = FV of asset- Bv of asset

= 1954000-31000

= 16,44,000