1) Compute the goodwill recognized by Hardware for the purchase.

Hardware, Inc. purchased 100% of the common shares of Software, Inc. for $470,000 on 1/1/07.  Software, Inc.’s balance sheet just before the purchase appears below:

Cash                                                           $90
Net fixed assets                                           220
Total assets                                                 310
Liabilities                                                     240
Stockholders’ equity                                      70
Total liabilities and stockholders’ equity         310

The fair market value of Software’s assets and liabilities were equal to their book values.

1) Compute the goodwill recognized by Hardware for the purchase.

2) How would goodwill appear on Hardware’s financial statements?

3) Hardware has net income, excluding Software for 2007 of $150,000.  Software has a net loss for 2007 of $10,000.  Compute consolidated net income for 2007.

Additional Information:

This question is basically belongs to Accounting as well as it explains about a condition where one company has bought another company and its goodwill is being valued throughthe purchase. This assessment has been given in the solution.

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