The following information is to be used for questions 21 through 25

Starship Corp. acquired 100% of Jefferson Inc. on April 1, 2018 for $1,300,000. Payment was in the form of $600,000 in cash and $700,000 in Starship stock. There was no dissolution of Jefferson and push down accounting was NOT applied. The carrying value of the assets and liabilities of each entity at the acquisition date (prior to recording the acquisition) are shown below ($ in 000’s)

Starship Jefferson Starship Jefferson

Cash $ 400 $ 100 Liabilities $ 500 320

Land 600 200 Common stock (no par) 1,000 400

Building 800 400 Retained earnings 550 230

Equipment 200 150 $ 2,050 $ 950

Trademark 0 0

Other assets 50 100

$ 2,050 $ 950

Fair values of Jefferson assets and liabilities are as follows ($ in 000’s) :

Cash $100

Land 300

Building 700 (15 year life)

Equipment 200 ( 5 year life)

Trademark 210 ( 7 year life)

Other assets 100

Liabilities 320

Starship incurred $30,000 of stock issuance costs and $35,000 in acquisition costs in connection with the acquisition. As part of the transaction, Starship agreed to pay Jefferson shareholders $75,000 of additional consideration if earnings through December 31, 2019 exceed a specified amount. The fair value of such contingent amount was $36,000 at the acquisition date and $52,000 at December 31, 2018. The specified amount was exceeded in 2019.

On a separate company basis (but before accounting for any impact, of acquisition related items, if any), for the year ended December 31, 2018 Starship generated net operating income of $800,000 and Jefferson had net income of $270,000. Net income for both entities was earned ratably throughout the year. The balance of equipment as of December 31, 2018 on Starship's seperated books was $220,000 and $180,000 Jefferson's seperate books. There were no disposals of equipment in 2018.

As of the acquisition date, calculate the amount of goodwill?

Calculate the amount of consolidated common stock as of the acquisition date, subsequent to the recording of the acquisition.

Calculate the consolidated balance of equipment as of December 31, 2018.

Calculate the impact on net income for the year ended December 31, 2019 related to the contingent consideration.

Calculate the amount of consolidated net income for the year ended December 31, 2018.

Answer rating: 100% (QA)

Answer 1 Goodwill Particulars Amount Consideration Paid 130000000 Add Contingent Consideration 36000... View the full answer