• ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in cash on July 1, 2019. On the date, the balance sheets of each of these companies were as follows:
   

  	ABC123 Inc	DEF456 Inc
  Cash and Short-Term Securities	$900,000	$200,000
  Inventory	$ 50,000	$120,000
  Plant and Equipment (net)	$350,000	$150,000
  Goodwill	$ -	$ 80,000
  Total Assets	$1,300,000	$550,000
  Current Liabilities	$ 180,000	$160,000
  Bonds Payable	$ 400,000	$100,000
  Common Shares	$ 500,000	$200,000
  Retained Earnings	$ 220,000	$ 90,000
  Total Liabilities and Equity	$1,300,000	$550,000

  
  
  On that date, the fair values of DEF456 Assets and Liabilities were as follows:
   

  Cash and Short-Term Securities	$200,000
  Inventory	$ 90,000
  Plant and Equipment (net)	$250,000
  Current Liabilities	$160,000
  Bonds Payable	$ 88,000

  
  
  In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively.
  
  Based on the information provided:
  
  a) Calculate the amount of Goodwill arising from this combination.
  
  b) Prepare the journal entry to record ABC123's acquisition of DEF456's shares.
  
  c) Prepare ABC123's Consolidated Balance Sheet immediately following its acquisition of DEF123's voting shares.

   

Answer rating: 100% (QA)

a Calculation of goodwill Consideration paid by ABC123 Inc for 100 shares of DEF456 Inc 400000 Fair ... View the full answer