Hutton Company acquires all of Hodge Companys assets and lia

Hutton Company acquires all of Hodge Company’s assets and liabilities for $15,000,000 in cash. The fair values of Hodge’s assets and liabilities approximate their book values, except Hodge has developed technology valued at $8,000,000 that is not reported on its balance sheet, and its buildings are overvalued by $7,000,000. Here is Hodge’s balance sheet just prior to the acquisition: Hodge Company Current assets $ 500,000 Land, buildings, and equipment 9,500,000 Total assets $10,000,000 Liabilities $ 6,000,000 Common stock, $1 par 100,000 Additional paid-in capital 2,915,000 Retained earnings 1,000,000 Treasury stock (20,000) Accumulated other comprehensive income 5,000 $10,000,000 REQUIRED: Calculate the amount of Goodwill or Gain that resulted from the acquisition.

Solution

current asset 500000 Land building and equipment [9500000+7000000] 16500000 unreported technology 8000000 Total asset 25000000 less:Liabilities (6000000) Net value of asset acquired 19,000,000 Amount paid 15,000,000 Net value of asset acquired (19,000,000) Gain from acquisition (4,000,000)    [enter as 4,000,000]