On June 1, Cline Co. paid $1,030,000 cash for all of the issued and outstanding common stock of Renn Corp. The carrying amounts for Renn’s assets and liabilities on June 1 follow: Cash $ 242,000 Accounts receivable 228,000 Capitalized software costs 370,000 Goodwill 166,000 Liabilities (209,000 ) Net assets $ 797,000 On June 1, Renn’s accounts receivable had a fair value of $161,000. Additionally, Renn’s in-process research and development was estimated to have a fair value of $250,000. All other items were stated at their fair values. On Cline’s June 1 consolidated balance sheet, how much is reported for goodwill?
Purchase price paid = $1,030,000
Fair Value of assets :
Cash = $242,000
Accounts receivable = $161,000
Capitalized software cost = $370,000
In-process research and development = $250,000
Calculation of Goodwill :
Goodwill = Purchase Price - (Fair Market Value of Assets - Liabilities)
Goodwill = $1,030,000 - ($242,000 + $161,000 + $370,000 + $250,000 - $209,000) = $216,000
Note : Goodwill is not an identifiable asset for the purpose of allocating the purchase price. Hence, it's not considered while calculating fair market value of assets.
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