Hardware, Inc. purchased 100% of the common shares of Software, Inc. for $470,000 on 1/1/07. Software, Inc.'s balance sheet just before the purchase appears below:
Net fixed assets 220
Total assets 310
Stockholders' equity 70
Total liabilities and stockholders' equity 310
The fair market value of Software's assets and liabilities were equal to their book values.
1) Compute the goodwill recognized by Hardware for the purchase.
2) How would goodwill appear on Hardware's financial statements?
3) Hardware has net income, excluding Software for 2007 of $150,000. Software has a net loss for 2007 of $10,000. Compute consolidated net income for 2007.
The question belongs to Accounting and it discuses about a scenario where one company has purchased another company and its goodwill is being valued during the purchase. This assessment has been given in the solution.
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