Question

Passcode Incorporated acquired 90% of Safe Systems International for $540,000, the market value at that time. On the date of acquisition, Safe Systems showed the following balances on their ledger:

Book Value Fair Value

Current Assets $200,000 $200,000

Buildings 290,000 320,000

Equipment 410,000 430,000

Liabilities (350,000) (360,000)

Safe Systems has determined that their buildings have a remaining life of 10 years, and their equipment has a remaining useful life of 8 years.

Requirement 1: Calculate the amount of goodwill that will appear on the general ledger of Passcode and Safe Systems, as well as the amount that will appear on the consolidated financial statements.

Requirement 2: Calculate the amount of amortization that will appear on the consolidated financial statements for buildings and equipment, and explain how this amortization of excess fair value is shown on the separate general ledgers of Passcode and Safe Systems.

Answer

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