Chapter 2 #7

I apologize that I did not adequately answer this question in the grad class last night, but let's give it another try. We discussed in class how to find GW just by comparing the FV of Consideration given with the FV of the net assets. But let's do it the alternative way, comparing FV of Consideration given with the BV of the net assets and allocate.

FV of Consideration given = 800
BV of Net Assets = 620
XS = 180
Allocation: AR (40)
Goodwill: (100) - note this is b/c BV is 100 and FV is zero
IPR&D: 200
GW = 120 (same as under the other method - if they come out different, something is wrong!)

Further to address the question regarding the journal entry for Sub's pre-existing goodwill, basically, at the date of consol, we would have a credit to S-GW to get it to zero for consolidated purposes. It would be addressed with the (A) journal entry, to use the book's designation of the JE's.