Consolidation
Goliath Corporation purchased all of Masonry Corporation’s outstanding stock on January 1, 1999, for $6,000,000.The purchase price was paid as follows: Goliath Corporation issued 40,000 shares of its own common stock, par $1, with a market price of $102/share, and cash paid of $1,920,000.The acquisition was accounted for as a purchase. Therefore, Masonry’s income statement has been included with Goliath’s since the acquisition date. The estimated fair value and carrying value of the assets purchased and the liabilities assumed totaled $7,600,000 and $2,100,000. The excess of the purchase price over the fair value of the assets is being amortized over 40 years on a straight-line basis. Required
a. Use the balance sheet equation to show how Goliath’s financial statements will be affected by its acquisition of Masonry. (Assume that Masonry continues as a separate corporation.)
b. Determine any goodwill inherent in this acquisition.
c. Why did Goliath pay more than the fair value of Masonry’s net assets?
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