Calculate the amount paid for goodwill


Question 1:

Semtech Manufacturing purchased land and building for $4 million.  In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and building:

Title insurance                                                              $16,000
Legal fees for drawing the contract                                    5,000
Pro-rated property taxes for the period after acquisition     36,000
State transfer fees                                                            4,000

An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.3 and $1.1 million, respectively.  Shortly after acquisition, Semtech spent $82,000 to construct a parking lot and $40,000 for landscaping.

Required:

1. Determine the initial valuation of each asset Semtech acquired in these transactions.

2. Repeat requirement one, assuming that immediately after acquisition, Semtech demolished the building.  Demolition costs were $250,000, and the salvaged materials were sold for $6,000.  In addition Semtech spent $86,000 clearing up and grading the land in preparation for the construction of a new building.

Question 2:

On March 31, 2011, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for $17,000,000 in cash.  The book values and fair values of Barney’s asset and liabilities were as follows:

                                                      Book Value            Fair Value
    Receivables                                 $1,300,000            $1,100,000
    Property, plant and equipment        8,000,000              9,400,000
    Intangible assets                              200,000              1,200,000

Required

Calculate the amount paid for goodwill.

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Finance Basics: Calculate the amount paid for goodwill
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