On January 1, 20X1, Pepper purchased 80 interest in Salt for $800K At the time of the purchase, Salts assets and liabilities were equal to book value except for Inventory, Building and Land (which had fair values in excess of book value of $30K, $80K and $115K respectively) Net Asset BV at the time of purchase was $680K Included in the $800K purchase price was a covenant not to compete The covenant was value at $40K and is for a two year period At the time of the purchase, it was determined that the all of Salts depreciable assets had a remaining 5 year life The following events occurred during the year Event 1 Pepper sold inventory with an originally cost of $420K to Salt for $700K Salt sold 90 to a third party for $800K and had 10 of the inventory remaining at the end of the year Event 2 On January 1, 20X1 Salt borrowed $800K from Pepper at 7 interest Salt paid zero down on the principle during the year However, Salt paid $20K of the interest and had a payable to Pepper at year end for the remaining difference Pepper had a corresponding receivable on its books at the end of the year Event 3 On January1, 20X1, Salt sold equipment (that was originally purchased for $300K and had an associated depreciation of $150K Salt sold the equipment to Pepper for $200K At the time of sale, it was determined that the equipment had a five year life remaining Event 4 Salt paid Pepper $95K for accounting and tax services during the year Pepper incurred $40K in costs providing those services to Salt How much of the differential will be allocated to Goodwill

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Posted on Sep 17, 2024

On January 1, 20X1, Pepper purchased 80% interest in Salt for $800K. At the time of the purchase, Salts assets and liabilities were equal to

On January 1, 20X1, Pepper purchased 80% interest in Salt for $800K. At the time of the purchase, Salts assets and liabilities were equal to book value except for Inventory, Building and Land (which had fair values in excess of book value of $30K, $80K and $115K respectively). Net Asset BV at the time of purchase was $680K. Included in the $800K purchase price was a covenant not to compete. The covenant was value at $40K and is for a two year period. At the time of the purchase, it was determined that the all of Salts depreciable assets had a remaining 5 year life.

The following events occurred during the year:

Event #1 Pepper sold inventory with an originally cost of $420K to Salt for $700K. Salt sold 90% to a third party for $800K and had 10% of the inventory remaining at the end of the year
Event #2 On January 1, 20X1 Salt borrowed $800K from Pepper at 7% interest. Salt paid zero down on the principle during the year. However, Salt paid $20K of the interest and had a payable to Pepper at year end for the remaining difference. Pepper had a corresponding receivable on its books at the end of the year
Event #3 On January1, 20X1, Salt sold equipment (that was originally purchased for $300K and had an associated depreciation of $150K. Salt sold the equipment to Pepper for $200K. At the time of sale, it was determined that the equipment had a five year life remaining
Event #4 Salt paid Pepper $95K for accounting and tax services during the year. Pepper incurred $40K in costs providing those services to Salt.

How much of the differential will be allocated to Goodwill