Question

Taste-T Company has been in business for 30 years and has developed a large group of loyal restaurant customers. Down Home Foods made an offer to buy Taste-T Company for $7,500,000. The market value of Taste-T’s tangible assets, net of liabilities, on the date of the offer is $6,350,000. Taste-T also holds a patent for a fluting machine that the company invented (the patent with a market value of $575,000 was never recorded by Taste-T because it was developed internally). Required:a.How much has Down Home Foods included for intangibles in its offer of $7,500,000?b.Assuming Taste-T accepts this offer, which company will report Goodwill on its balance sheet and at what amount?

Answer 1

Answer:

Intangibles = $1150,000 and Down Home Foods will record Goodwill equal to $575,000

Explanation:

A)  Value on Intangible assets (Goodwill+Patent) = Total Assets - Tangible Assets

=$7,500,000 - $6,350,000 = $1150,000

Intangibles = $1150,000

B)  Down Home Foods will record Goodwill in its books.

Value of Goodwill = Purchase Consideration - (Total Tangible Assets + Market Value of Patents)

= $7,500,000 - ($6,350,000+$575,000) = $575000

Down Home Foods will record Goodwill equal to $575,000