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Peter acquires 100% of Saul for 5,254,360 in a tax-free business combination. The applicable income tax rate...

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Accounting

Peter acquires 100% of Saul for 5,254,360 in atax-free business combination. The applicableincome tax rate is 30%. Goodwill is not deductible for taxpurposes. Based on the following information about the assets andliabilities of Sunfish, what amount should Porpoise record asgoodwill for this acquisition on the date of acquisition?

Old book basisOld tax basisFair value
Cash$400,000$400,000$400,000
Equipment, net of depreciation500,000200,000750,000
Patents002,000,000
Goodwill80,000NA?
Accounts payable(300,000)(300,000)(300,000)
Deferred income taxes payable(90,000)NA?
Notes payable(200,000)(200,000)(230,000)

Answer & Explanation Solved by verified expert
4.0 Ratings (496 Votes)

Old book basis Old tax basis Fair value Temporary difference
Cash                400,000           400,000            400,000                  -  
Equipment, net of depreciation                500,000           200,000            750,000      (550,000) DTL
Patents                             -                         -          2,000,000 (2,000,000) DTL
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)              30,000 DTA
Net taxable temporary difference (2,520,000)
DTL @30%       756,000
Cash            400,000
Equipment, net of depreciation            750,000
Patents        2,000,000
Accounts payable          (300,000)
Deferred income taxes payable          (756,000)
Notes payable          (230,000)
Net identifiable assets        1,864,000
Consideration paid        5,254,360
Goodwill to be recognised        3,390,360

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