Reebok International is a leading worldwide designer, marketer, and distributor of sport, fitness, and lifestyle products, including footwear and apparel. The notes to a recent annual report from Reebok included the following:

Assume that Reebok acquired Perfection Sport Fashions on January 5. 2003. Reebok acquired the name of the company and all of its assets, except cash, for $400,000 cash. Reebok did not assume the liabilities. The transaction was closed on January 5, 2003. at which time the balance sheet of Perfection Sport Fashions reflected the following book values and an independent appraiser estimated the following market values for the assets:

Required: 1. Compute the amount of goodwill resulting from the purchase. (Hint: Assets are purchased at market value in conformity with the cost principle.) 2. Compute the adjustments that Reebok would make at the end of the annual accounting period.

December 31, 2003, for the following:

a. Depreciation of the fixed assets (straight line), assuming an estimated remaining useful life of 15 years and no residual value.

b. Goodwill (an intangible asset with an indefinite life).

Transcribed Image Text:

Business Acquisitions During the current year, the Company acquired the assets of Perfection Sport Fashions, Inc., a designer and marketer of performance apparel and accessories marketed under the Tinley brand name.