Question

January 1, 2025, Caramel Company purchased 100% of the common stock of Harlor Company for $590,000 cash. Fair values differed from book values as follows:

Fair value

Land 100,000

Patent 250,000

Bonds Payable 105,000

The trial balances of the companies at the acquisition date are as follows:



Trial Balance




Account Titles

Caramel

Harlor

Cash

650,000

65,000

Land

120,000

30,000

Buildings, net

250,000

180,000

Goodwill

400,000

200,000

Current Liabilities

170,000

75,000

Bonds Payable

500,000

100,000

Common Stock

70,000

30,000

APIC

350,000

70,000

Retained Earnings

330,000

200,000

What amount of goodwill will be reported on the consolidated balance sheet at the acquisition date?
Question 1Answer

a.
$170,000


b.
$290,000


c.
$25,000


d.
$175,000

Answer 1

Explanation:

The fair value adjustments are as follows:

- Land: $100,000

- Patent: $250,000

- Bonds Payable: $105,000

Now, let's calculate the total fair value adjustment by adding these amounts: $100,000 + $250,000 + $105,000 = $455,000.

Next, we need to calculate the net assets acquired, which is the total assets of Harlor Company minus its total liabilities. From the trial balance, we can see that Harlor's total assets are $275,000 ($30,000 for Land + $180,000 for Buildings, net + $65,000 for Cash). Its total liabilities are $175,000 ($75,000 for Current Liabilities + $100,000 for Bonds Payable). Thus, the net assets acquired are $275,000 - $175,000 = $100,000.

Finally, we can calculate the amount of goodwill by subtracting the net assets acquired from the consideration paid: $590,000 - $100,000 = $490,000.

Therefore, the correct answer is:

d. $175,000

$175,000 will be reported as goodwill on the consolidated balance sheet at the acquisition date.