On January 1 2018 the Moody Company entered into a transacti

On January 1, 2018, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Accounts Moody Osorio Cash $180 $40 Receivables $810 $180 Inventories $1,080 $280 Land $600 $360 Buildings (net) $1,260 $440 Equipment (net) $480 $100 Accounts payable ($450) ($80) Long-term liabilities ($1,290) ($400) Common stock ($1 par) ($330) Common stock ($20 par) ($240) Additional paid-in capital ($1,080) ($340) Retained earnings ($1,260) ($340) What is the amount of GOODWILL arising from this acquisition?

Solution

Fair value of asset aquired : 40 cash +receivables 180 +280 inventory +360 land +440 building +100equipment

                = 1400

Fair value of liability = 80+400 =480

Excess of asset over liability = 1400-480= 920

Consideration paid = 400 long term liabilities issued+ [40*10 ]common shares issued

               = 400+400

               = $ 800

Goodwill/(capital reserve) =Consideration paid - excess of asset over liabilities- combination expense

                      = 800-920-20

                      = -140

so there is no goodwill arising on acquisition .there is a bargain gain of $ 140