Fontana Company developed a specialized banking application software program that it licenses to various financial institutions through

Question:

Fontana Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2013, these licensing agreements have a fair value of $750,000 and represent Fontana's sole asset. Although Fontana currently has no liabilities, because of recent operating losses, the company has a $120,000 net operating loss (NOL) carry forward. On January 1, 2013, Catalan, Inc., acquired all of Fontana's voting stock for $900,000. Catalan expects to extract operating synergies by integrating Fontana's software into its own products. Catalan also hopes that Fontana will be able to receive a future tax reduction from its
NOL. Assume an applicable federal income tax rate of 35 percent.
a. If there is a greater than 50 percent chance that the subsidiary will be able to utilize the
NOL carry forward, how much should Catalan recognize from the acquisition?
b. If there is a less than 50 percent chance that the subsidiary will be able to utilize the NOL carry forward, how much should Catalan recognize from the acquisition?
Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...