Case Study Objective:
Rock Solid Manufacturing, Inc., has acquired the net assets of Jelly Soft Manufacturing, Inc., for $10 million and now needs to address how the acquisition should be recorded on its books for financial reporting purposes and which intangible assets must be amortized and which must be tested for impairment in the future.
Case Study Requirements:
Given the information provided below, solve for the goodwill amount then allocate the purchase price of $10 million to the appropriate assets acquired and liabilities assumed in accordance with ASC 805 - Business Combinations. Then identify which assets are tangible and which are intangible. Identify which intangible assets must be amortized and which must be tested for impairment in the future.
Fair Values:
- Cash - $800
- Accounts receivable - $1,500
- Inventory - $850
- Equipment - $500
- Building - $1,200
- Customer relationships (finite life) - $2,300
- Patents (finite life) - $600
- Trademarks (indefinite life) - $400
- Goodwill - (solve for)
- Accounts payable - $500
- Accrued payroll - $50
- Note payable - bank - $950