Question

Peter acquires 100% of Saul for 6,083,035 in a tax-free business combination. The applicable income tax rate is 30%. Goodwill is not deductible for tax purposes. Based on the following information about the assets and liabilities of Sunfish, what amount should Porpoise record as goodwill for this acquisition on the date of acquisition?

	Old book basis	Old tax basis	Fair value
Cash	$400,000	$400,000	$400,000
Equipment, net of depreciation	500,000	200,000	750,000
Patents	0	0	2,000,000
Goodwill	80,000	NA	?
Accounts payable	(300,000)	(300,000)	(300,000)
Deferred income taxes payable	(90,000)	NA	?
Notes payable	(200,000)	(200,000)	(230,000)

Answer 1

Particulars	Fair Value
Cash	$           4,00,000
Equipment, net of depreciation	$           7,50,000
Patents	$        20,00,000
Accounts payable	$         -3,00,000
Deferred income taxes payable	$                       -
Notes payable	$         -2,30,000
Value of Net assets taken over	$        26,20,000
Purchase consideration paid	$        60,83,035
Goodwill to be recorded	$        34,63,035

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