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