9) Patent Corp., a publicly accountable entity, purchased a company with the following assets and liabilities for $100,000:
Carrying value |
Fair value |
|
Cash |
10,000 |
10,000 |
Inventories |
18,000 |
17,000 |
Property, plant and equipment |
12,000 |
10,000 |
Intangible assets |
32,000 |
40,000 |
Accounts payable |
15,000 |
15,000 |
Long-term liabilities |
10,000 |
15,000 |
Equity |
47,000 |
How much goodwill should be recorded?
A) $47,000
B) $53,000
C) $70,000
D) $100,000
10) Growth Corp., a publicly accountable entity, purchased a company with the following assets and liabilities for $100,000:
Carrying value |
Fair value |
|
Inventories |
18,000 |
17,000 |
Equipment |
12,000 |
10,000 |
Intangible assets |
32,000 |
40,000 |
Accounts payable |
15,000 |
15,000 |
Long-term liabilities |
10,000 |
15,000 |
Which of the following is not correct about the difference between carrying value and fair value?
A) Long-term liabilities could have a higher value due lower interest rates.
B) Inventories could have a lower fair value due to obsolescence.
C) Equipment could have a lower fair value due to decreased productive capacity.
D) Inventories could have a lower fair value due to accounting errors.
11) Growth Corp., a publicly accountable entity, purchased a company with the following assets and liabilities for $97,000:
Carrying value |
Fair value |
|
Inventories |
18,000 |
17,000 |
Equipment |
12,000 |
10,000 |
Intangible assets |
32,000 |
40,000 |
Accounts payable |
10,000 |
15,000 |
Long-term liabilities |
10,000 |
15,000 |
Which of the following is not correct?
A) Accounting goodwill of $55,000 will be recorded.
B) Accounting goodwill of $60,000 will be recorded.
C) The fair value of net tangible assets is $27,000.
D) Equipment could have a lower fair value due to decreased productive capacity.
12) Below are several intangible assets. For each case suggest whether the item should be amortized. If amortization is recommended, what is the useful life that it should be amortized over? Provide justification for your recommendation.
a. Aye Corp purchased a brand name for $1,000,000. The firm has the exclusive right to use this name forever.
b. Bee Corp has developed a strong corporate reputation and its products are highly sought-after in the luxury goods market. Last year, $40,000,000 was spent on advertising its brand in top-tier fashion magazines and at the top fashion shows around the world.
c. Cee Corp paid $25,000,000 for the five-year exclusive privilege to have a famous celebrity endorse and use the company’s sports equipment. This contract entitles Cee to renew the contract for a further two-year exclusive endorsement arrangement for a fixed fee of $10,000,000, due midway through the last year of the current contract.
13) Calculate the missing amounts by completing the table below.
14) Explain the difference between indefinite lived and finite lived intangible assets.
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