ABC123 Inc Has Decided to Purchase 100% the Voting Shares

question 17

Essay

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2012. On the date, the balance sheets of each of these companies were as follows: On that date, the fair values of DEF456 Assets and Liabilities were as follows: In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively. Assuming that DEF456's Plant and Equipment was worth $400,000. Calculate the goodwill arising from this business combination and state how it would be shown in the consolidated balance sheet on the acquisition date.

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Definitions:

Bailment

A legal relationship where physical possession of personal property, or a chattel, is transferred from one party to another, with the understanding that the property will be returned or otherwise disposed of according to the owner's instructions.

Bailor

A person or entity that entrusts their property into the hands of another, called the bailee, under an agreement for a specific purpose.

Bailee

An individual or entity that is given temporary possession, but not ownership, of personal property by another person (the bailor) under a bailment agreement.

Accidental Damage

Accidental damage refers to harm that occurs unexpectedly and unintentionally, resulting in loss or injury not caused by deliberate actions.