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Taxpayer purchases an entity's stock (i.e. nontaxable transaction) for $50,000,000 with $10M of the purchase...

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Accounting

Taxpayer purchases an entity's stock (i.e. nontaxable transaction) for $50,000,000 with $10M of the purchase price contingent on future earnings. Tax rate is 21%. Additional information for the acquisition is below.

Acquired Entity Tax Basis FMV

Cash 1,000,0000 1,000,000 4,000,000

Accounts Receivable 20,000,000 20,000,000 20,000,000

Allowance for Bad Debt (500,000) (500,000)

Inventory 7,000,000 8,000,000 10,000,000image

PP&E 1,000,000 1,000,000 750,000

Accumulated Depreciation (200,000) (600,000)

Prepaid Insurance 250,000 250,000 250,000

Equity (28,550,000) (28,650,000) 50,000

31,500,000

Calculate the goodwill that will be recorded for financial statement purpose.

Acquired Entity Tax Basis FMV Cash 1,000,000 1,000,000 1,000,000 Accounts Receivable 20,000,000 20,000,000 20,000,000 Allowance for Bad Debt (500,000) (500,000) Inventory 7,000,000 8,000,000 10,000,000 PP&E 1,000,000 1,000,000 750,000 Accumulated Depreciation (200,000) (600,000) Prepaid Insurance 250,000 250,000 250,000 Equity (28,550,000) (29,650,000) -- -- 31,500,000

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