REFERENCE: Ref.02_07
Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31,2009,immediately before Atwood acquired Franz.Also included are the fair values for Franz Company's net assets at that date.
Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31,2009.Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid.Atwood is applying the acquisition method in accounting for Franz.To settle a difference of opinion regarding Franz's fair value,Atwood promises to pay an additional $5.2 (in thousands)to the former owners if Franz's earnings exceed a certain sum during the next year.Given the probability of the required contingency payment and utilizing a 4% discount rate,the expected present value of the contingency is $5 (in thousands).
-Compute consolidated goodwill at date of acquisition.

Question

REFERENCE: Ref.02_07
Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31,2009,immediately before Atwood acquired Franz.Also included are the fair values for Franz Company's net assets at that date.
  Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31,2009.Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid.Atwood is applying the acquisition method in accounting for Franz.To settle a difference of opinion regarding Franz's fair value,Atwood promises to pay an additional $5.2 (in thousands)to the former owners if Franz's earnings exceed a certain sum during the next year.Given the probability of the required contingency payment and utilizing a 4% discount rate,the expected present value of the contingency is $5 (in thousands).
-Compute consolidated goodwill at date of acquisition.

Quizplus · Accepted Answer

The calculation of consolidated goodwill is as follows:

Total consideration transferred = 50 shares x $35 per share = $1,750 
+ Stock issuance costs = $15 
+ Direct costs = $10 
= Total cost of acquisition $1,775

Fair value of Franz's net assets at date of acquisition = $1,300

Therefore, goodwill = Total consideration transferred - Fair value of net assets acquired 
= $1,775 - $1,300 
= $475

However, there is a contingency payment of $5.2 (in thousands) that has a 4% discount rate and an expected present value of $5 (in thousands). Therefore, we need to adjust the goodwill calculation by the expected present value of the contingency payment:

Adjusted goodwill = Goodwill - Expected present value of contingency payment 
= $475 - $5 
= $470

Therefore, the correct answer is A) $455, which is the closest option to the adjusted goodwill of $470.

REFERENCE: Ref.02_07 Presented Below Are the Financial Balances for the Atwood Company