Comprehensive Problem

Please compute the goodwill (show some work) that is part of this transaction.

1 Smith acquired all of the stock of Jones Co. on January 1, 2021 for $2M. It is still January 1. 2 3 Please compute the goodwill (show some work) that is part of this transaction. 4 5 The Investment in Sub recorded on Smith's books is $2M since that was the purchase price. 6 In the notes under Case #2 it says that the balance in the investor's (Smith) 7 Investment account is the book value of the investee's stockholder's equity plus 8 any unrecorded assets minus intercompany deferred gains. We don't have any intercompany transactions, 9 but we do have some unrecorded assets. 10 11 Please indicate what part of the 2M is from Jones Co.'s Stockholder's Equity 12 and what part of the 2M is from the unrecorded assets of Jones Co. 13 Stockholder's Equity of Jones: 14 Unrecorded assets of Jones: 15 Total: O SHOULD BE 2M before you turn this in 16 17 Book Value Fair Value 18 Investee/ Investee/ 19 Subsidiary Subsidiary Difference 20 Assets: 21 Cash 100,000 100,000 22 Accounts receivable 400,000 400,000 23 Inventory 500,000 500,000 24 Property, plant and equipment (PPE), net 900,000 1,100,000 200,000 25 License Agreement 200,000 200,000 26 Customer List 50,000 50,000 27 Goodwill ???? 28 1,900,000 2,350,000 450,000 29 Liabilities and stockholders' equity: 30 Accounts payable 100,000 100,000 31 Accrued liabilities 200,000 200,000 32 Long-term liabilities 550,000 550,000 83 Total liabilities 850,000 850,000 34 Net Assets 1,050,000 1,500,000 450,000 35 36 *Hint: If you forgot this from class: Net assets is like saying Assets-Liabilities. 37 Assets-Liabilities - Stockholder's Equity from our Accounting equation so 38 Stockholder's Equity = Net Assets! 39