ABC123 Inc Has Decided to Purchase 100% the Voting Shares

question 58

Essay

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows:
$\begin{array}{|l|r|r|}\hline & \text { ABC123 Inc } & \text { DEF456 Inc } \\\hline \begin{array}{l}\text { Cash and Short-Term } \\\text { Securities }\end{array} & \$ 900,000 & \$ 200,000 \\\hline \text { Inventory } & \$ 50,000 & \$ 120,000 \\\hline \text { Plant and Equipment (net) } & \$ 350,000 & \$ 150,000 \\\hline \text { Goodwill } & \$- & \$ 80,000 \\\hline \text { Total Assets } & \$ 1,300,000 & \$ 550,000 \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 400,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 220,000 & \$ 90,000 \\\hline \text { Total Liabilities and Equity } & \$ 1,300,000 & \$ 550,000\\\hline\end{array}$ On that date, the fair values of DEF456 Assets and Liabilities were as follows:
$\begin{array}{|l|r|}\hline \text { Cash and Short-Term Securities } & \$ 200,000 \\\hline \text { Inventory } & \$ 90,000 \\\hline \text { Plant and Equipment (net) } & \$ 400,000 \\\hline \text { Current Liabilities } & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 88,000\\\hline\end{array}$ 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.
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:

Olfaction

The sense of smell, an important chemical sensing system in humans and animals for detecting environmental odors.

Sense of Smell

The ability to perceive and identify different odors through the olfactory system.

Neural Impulses

Electrical signals that travel along the neurons, serving as the means of communication within the nervous system.

Sensory Interaction

The principle that one sense can influence or interact with another, affecting how we perceive the world around us.