Passcode Incorporated Acquired 90% of Safe Systems International for $540,000

question 21

Essay

Passcode Incorporated acquired 90% of Safe Systems International for $540,000, the market value at that time.On the date of acquisition, Safe Systems showed the following balances on their ledger:
Safe Systems has determined that their buildings have a remaining life of 10 years, and their equipment has a remaining useful life of 8 years.
Requirement 1: Calculate the amount of goodwill that will appear on the general ledger of Passcode and Safe Systems, as well as the amount that will appear on the consolidated financial statements.
Requirement 2: Calculate the amount of amortization that will appear on the consolidated financial statements for buildings and equipment, and explain how this amortization of excess fair value is shown on the separate general ledgers of Passcode and Safe Systems.

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Definitions:

Benchmark

A standard or point of reference against which things may be compared or assessed.

Agency Problem

A conflict of interest between a company's management and its shareholders, where the management may act in their own best interests rather than those of the shareholders.

Shareholders

Individuals or entities that own shares of stock in a corporation, giving them ownership interests and possibly rights to dividends and voting.

Management

Management involves the organization and coordination of activities to achieve defined objectives, typically within a business setting.