Question

Consolidation with Revalued Assets and Goodwill

Waitsburg Company purchased all of Umatilla Company's common stock for $2,460,000 cash on January 1. When analyzing the purchase price, Waitsburg determined that the other assets of Umatilla were undervalued by $330,000, with any excess purchase price considered to be goodwill.

Use the following table to consolidate the balance sheets of the two companies as of the acquisition date.

	Waitsburg	Umatilla	Consolidating Adjustments	Consolidated Balance Sheet
Investment in Umatilla	$2,460,000
Other assets	8,028,000	$3,744,000
Goodwill
Total assets	$10,488,000	$3,744,000
Liabilities	$5,778,000	$1,680,000
Common stock	1,266,000	756,000
Retained earnings	3,444,000	1,308,000
Total liabilities & stockholders’ equity	$10,488,000	$3,744,000

Answer 1

The consolidation is provided as below:

	Waitsburg	Umatilla	Consolidating Adjustments	Consolidated Balance Sheet
Investment in Umatilla	$2,460,000		-2,460,000	0
Other assets	8,028,000	3,744,000	330,000	12,102,000
Goodwill			66,000	66,000
Total assets	$10,488,000	$3,744,000		$12,168,000
Liabilities	$5,778,000	$1,680,000		$7,458,000
Common stock	1,266,000	756,000	-756,000	1,266,000
Retained earnings	3,444,000	1,308,000	-1,308,000	3,444,000
Total liabilities & stockholders’ equity	$10,488,000	$3,744,000		$12,168,000

_____

Notes:

The value of goodwill is arrived as below:

Goodwill = Total Consideration Paid - Undervalued Assets - (Value of Umatilla's Common Stock + Value of Umatilla's Retained Earnings) = 2,460,000 - 330,000 - (756,000 + 1,308,000) = $66,000