Computing Goodwill from the Purchase of a Business and Related Depreciation and Amortization

The notes to a recent annual report from Weebok Corporation included the following:

Business Acquisitions

During the current year, the company acquired the assets of Sport Shoes Inc?.

Assume that Weebok acquired Sport Shoes on January 5, 2013. Weebok acquired the name of the company and all of its assets for $750,000 cash. Weebok did not assume the liabilities. The transaction was closed on January 5, 2013, at which time the balance sheet of Sport Shoes 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.

2 Compute the adjustments that Weebok would make at the end of the annual accounting period, December 31. 2013, for the following:

a. Depreciation of the fixed assets (straight line), assuming an estimated remaining useful life of 10 years and no residual value.

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

Transcribed Image Text:

January 5, 2010 Accounts receivable (net) Inventory Fixed assets (net) Other assets Total assets Sport Shoes, Inc. Liabilities Stockholders' equity Total liabilities and stockholders' equity Book Value $ 50,000 385,000 156,000 4,000 $595,000 $ 75,000 520,000 $595,000 Market Value* $ 50,000 350,000 208,000 10,000 *These values for the purchased assets were provided to Weebok by an independent appraiser. January 5, 2010 Accounts receivable (net) Inventory Fixed assets (net) Other assets Total assets Sport Shoes, Inc. Liabilities Stockholders' equity Total liabilities and stockholders' equity Book Value $ 50,000 385,000 156,000 4,000 $595,000 $ 75,000 520,000 $595,000 Market Value* $ 50,000 350,000 208,000 10,000 *These values for the purchased assets were provided to Weebok by an independent appraiser.

Answer rating: 100% (QA)

1 January 5 2013 Cash purchase price 750000 Less market value of identifiable assets ... View the full answer