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On January 1 2003 Fishing Creek Company purchased Skull Valley Technologies for $8800000 cash The book value and fair value of Skull Valley s assets as of the date of the acquisition are listed

On January 1, 2003, Fishing Creek Company purchased Skull Valley Technologies for $8,800,000 cash. The book value and fair value of Skull Valley s assets as of the date of the acquisition are listed below:

 

Book

Market

 

Value

Value

Cash

$100,000

$100,000

Accounts receivable

500,000

500,000

Inventory

950,000

1,200,000

Property, plant, and

1,500,000

1,900,000

Trademark

0

2,000,000

Totals

$3,050,000

$5,700,000

In addition, Skull Valley had liabilities totaling $4,000,000 at the time of the acquisition.

1. At what amount will Skull Valley s trademark be recorded on the books of Fishing Creek, the acquiring company?

2. How much goodwill will be recorded as part of this acquisition?

3. How much goodwill amortization expense will Fishing Creek recognize in 2003? What assumptions are necessary to answer this question?

4. Interpretive Question: What was Skull Valley s recorded stockholders equity immediately before the acquisition? Under what circumstances does stockholders equity yield a poor measure of the fair value of a company?

May 21 2020 View more View Less

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