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On 1/1/20, Coke Co. paid $2,800,000 to acquire all of the common stock of Dodo Corp....

On 1/1/20, Coke Co. paid $2,800,000 to acquire all of the common stock of Dodo Corp. On that date, Dodo's equity included $1,000,000 capital stock and $1,600,000 of retained earnings. An appraisal of Dodo's assets identified a patent that had a market value of $140,000 and a life of 5 years that was unrecorded. Dodo's reported earnings for 2020 totaled $512,000 and it paid $160,000 of dividends during the year. The amortization of allocations related to the investment was $28,000. Coke's net income, not including the investment, was $3,310,000, and it paid dividends of $950,000.

How much goodwill exists on 1/1/20?

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Answer #1

Calculation of Goodwill:

1)Total Value of Dodo Corp:

a) Capital Stock- $1,000,000

b) Retained Earnings- $1,600,000

c) Identified Patent value- $ 140,000

Hence, Total value= Capital Stock + Retained Earnings + Identified Patent value(Market Value)

= $1,000,000+$1,600,000+$140,000

= $2,740,000

2) Purchase Consideration - $2,800,000

Hence, Goodwill= Purchase Consideration - Total Value of Dodo Corp(1/1/20)

= $2,800,000- $2,740,000

= $60,000

Value of Goodwill as on 1/1/2020 = $60,000

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