On January 1, 2018, Bast Co. had a net book value of $2,100,000 as follows: Fish
ID: 2559630 • Letter: O
Question
On January 1, 2018, Bast Co. had a net book value of $2,100,000 as follows:
Fisher Co. acquired all of the outstanding preferred shares for $148,000 and 60% of the common stock for $1,281,000. Fisher believed that one of Bast's buildings, with a twelve-year life, was undervalued on the company's financial records by $70,000.
Required: What is the amount of goodwill to be recognized from this purchase?
Preferred stock, 2,000 shares $70 par value, cumulative, nonparticipating, nonvoting $140,000 Common stock, 22,400 shares $50 par value 1,120,000 Retained earnings 840,000 Total shareholders’ equity $2,100,000Explanation / Answer
Total amount paid= Outstanding Preferred Shares + Common Stock
= $ 148000 + $ 1,281,000
= $ 1,429,000
Consideration = Preferred Shares + Commom Stock (Only 60%) + Retained Earnings (Only 60%)+ Revalued Buliding (Only 60%)
= $ 140,000 + $ 672,000 ( $ 1,120,000*60%) + $ 504,000 ($ 840,000*60%) + $ 42,000 ($ 70,000*60%)
= $ 1,358,000
Amount of Goodwill = Total amount paid Less Consideration
= $ 1,429,000 - $ 1,358,000
= $ 71,000