Allocation of Acquisition Cost in a Purchase
Ronco, Inc. purchased all of the outstanding voting stock of Nanco,Ltd. on January 1, 1999, at a cost of $750 million paid in cash. On the acquisition date, Nanco had the following assets and liabilities (dollars in millions):
|
Book Value |
Fair Market Value |
|
|
Cash |
$ 55 |
$ 55 |
|
Other assets |
820 |
950 |
|
Liabilities |
430 |
364 |
Required
a. Explain why the fair market values of Nanco’s identifiable assets and liabilities may differ from their book or carrying values at the acquisition date.
b. Determine the excess of Ronco’s investment cost over the book value of Nanco’s net assets.
c. Determine the excess of Ronco’s investment cost over the fair market value of Nanco’s net assets.
d. Is goodwill implicit in the investment cost incurred by Ronco? If so, what amount would be reported as goodwill in Ronco’s consolidated balance sheet on January 1, 1999?