Question

ackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance:

	Debit				Credit
Cash	$	500
Accounts receivable		600
Inventory		900
Buildings (net) (5 year life)		1,600
Equipment (net) (2 year life)		1,000
Land		900
Accounts payable					$	400
Long-term liabilities (due 12/31/22)						1,900
Common stock						1,000
Additional paid-in capital						700
Retained earnings						1,500
Total	$	5,500			$	5,500

Net income and dividends reported by Clark for 2020 and 2021 follow:

	2020			2021
Net income	$	120		$	140
Dividends		40			50

The fair value of Clark’s net assets that differ from their book values are listed below:

	Fair Value
Buildings	$	1,200
Equipment		1,350
Land		1,300
Long-term liabilities		1,750

Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life.

Compute the amount of Clark’s buildings that would be reported in a December 31, 2020, consolidated balance sheet.

Compute goodwill, if any, at January 1, 2020.

Answer 1

Ans: The amount of Clark's building that would be reported in a December 31,2020: $1200 Building would be reported as per the Fair Value in Consolidated Balance Sheet :$1,200

2. Goodwill= Purchase consideration - Net assets

Net Assets= Total Assets- Liabilities

Total Assets= Cash + Account Receivable+ Inventory+ Building + Equipment+ land

=> 500+600+ 900+1,200+ 1,350+1,300

=> 5,850

Liabilities= Long term Liabilities+ Accounts payable

=> 1,750+ 400

=> 2,150

Net assets= 5,850-2,150

=> 3,700

Goodwill at Jan 1,2020= 4,100-3,700

=> $400