Consolidation and Goodwill
On January 1, 1999, Maplegrove Deli, Inc. purchased all of the outstanding stock of Bizno’s Sub Shops,Inc. for $4,500,000.Maplegrove paid $2,000,000 cash and issued 25,000 shares of its common stock, no par value, currently selling for $100 per share. The estimated fair value and carrying value of Bizno’s assets (purchased by Maplegrove) and liabilities (assumed by Maplegrove) approximated $6,200,000 and $1,920,000 respectively. The excess of the purchase price over the fair value of the assets is being amortized over 40 years on a straight-line basis. During 1999,Bizno’s earned a net income of $3,400,000 and paid dividends of $230,000.
Required
a. Use the balance sheet equation to show how Maplegrove’s financial statementsare affected at the date of acquisition.
b. How is Maplegrove affected by Bizno’s net income and dividends?
c. How much goodwill should Maplegrove amortize? Show the effect on Maplegrove’s balance sheet equation.
d. What is the net amount Maplegrove earned from owning Bizno’s during the year?
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