Question

Prepare a fair value allocation and goodwill schedule at the date of the acquisition.

Arizona Corp. had the following account balances at 12/1/19:

Receivables: $96,000; Inventory: $240,000; Land: $720,000; Building: $600,000; Liabilities: $480,000; Common stock: $120,000; Additional paid-in capital: $120,000; Retained earnings, 12/1/19: $840,000; Revenues: $360,000; and Expenses: $264,000.

Several of Arizona's accounts have fair values that differ from book value. The fair values are:

Land — $480,000; Building — $720,000; Inventory — $336,000; and Liabilities — $396,000.

Inglewood Inc. acquired all of the outstanding common shares of Arizona by issuing 20,000 shares of common stock having a $6 par value, but a $66 fair value. Stock issuance costs amounted to $12,000.

Answer 1

Solution : Fair value allocation and goodwill schedule at the date of the acquisition:

Particulars		Amount
Purchase Consideration (20,000 *66)		$13,20,000
Less: Book value of net assets acquired
Receivables	$96,000
Inventory	$2,40,000
Land	$7,20,000
Buliding	$6,00,000
Liabilities	-$4,80,000
Diff b/w Revenues & Expenses (360000-264000)	$96,000	$12,72,000
Excess of purchase consideration over book value		$48,000
Less: Fair value adjustments
Land ($480,000-$720,000)	-$2,40,000
Building ($720,000-$600000)	$1,20,000
Inventory ($336,000-$240,000)	$96,000
Liabilities ($480,000-$396,000 )	$84,000	$60,000
Bargain Purchage ( Goodwill)		-$12,000

There is negative goodwill in given case . The decision to acquire is correct and good decision since there is gain on acq of arizona corp.