The notes to a recent annual report from Lakshmi Financial Services Corporation indicated that the company acquired another company, Sanjeev Insurance Company. Assume that Lakshmi finalized the purchase of Sanjeev on January 2 of the current year. Lakshmi acquired all of Sanjeev’s assets and assumed Sanjeev’s liabilities for $1,400,000 cash. On January 2, Sanjeev Insurance Company’s balance sheet reflected the following book value. An independent appraiser estimated the following fair market value for the assets.

Required:
1. Compute the amount of goodwill resulting from the purchase.

2. Compute the adjustments that Lakshmi Financial Services Corporation would make at the end of the current year (ending December 31) for the following items acquired from Sanjeev’s Insurance Company:
a. Depreciation of equipment (straight-line), assuming an estimated remaining useful life of eight years and no residual value.
b. Goodwill (an intangible asset with an indefinite life).

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SANJEEV INSURANCE COMPANY Book Value $ 370,000 930,000 70,000 154,000 $1,524,000 On January 2 of the Current Year Accounts receivable Short-term investments Equipment (net) Operating lease right-of-use assets Total assets Accounts payable Unearned revenue (deposits from clients) Lease liabilities Stockholders' equity Total liabilities and stockholders' equity $ 6,000 1,002,000 140,000 376,000 $1,524,000 Fair Market Value $ 370,000 $1,090,000 25,000 180,000 $ 6,000 1,002,000 130,000