ADVANCED ACCOUNTING(LL) W/CONNECT
ADVANCED ACCOUNTING(LL) W/CONNECT
13th Edition
ISBN: 9781260282382
Author: Hoyle
Publisher: MCG
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Chapter 7, Problem 18P

a.

To determine

Find the amount of goodwill Company P should recognize from the acquisition if there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carry-forward.

b.

To determine

Find the amount of goodwill should Company P recognize from the acquisition if there is a less than 50 percent chance that the subsidiary will be able to utilize the NOL carry-forward.

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Firenze Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2018, these licensing agreements have a fair value of $997,500 and represent Firenze's sole asset. Although Firenze currently has no liabilities, the company has a $191,000 net operating loss (NOL) carryforward because of recent operating losses.   On January 1, 2018, Parma, Inc., acquired all of Firenze's voting stock for $1,205,000. Parma expects to extract operating synergies by integrating Firenze's software into its own products. Parma also hopes that Firenze will be able to receive a future tax reduction from its NOL. Assume an applicable federal income tax rate of 35 percent.   If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Parma recognize from the acquisition? If there is a less than 50 percent chance that the…
Sienna Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2021, these licensing agreements have a fair value of $905,000 and represent Sienna's sole asset. Although Sienna currently has no liabilities, the company has a $188,000 net operating loss (NOL) carry-forward because of recent operating losses. On January 1, 2021, Paoli, Inc., acquired all of Sienna's voting stock for $1,130,000. Paoli expects to extract operating synergies by integrating Sienna's software into its own products. Paoli also hopes that Sienna will be able to receive a future tax reduction from its NOL. Assume an applicable federal income tax rate of 21 percent. a. If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carry-forward, how much goodwill should Paoli recognize from the acquisition? b. If there is a less than 50 percent chance that the…
Sienna Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2021, these licensing agreements have a fair value of $857,500 and represent Sienna's sole asset. Although Sienna currently has no liabilities, the company has a $199,000 net operating loss (NOL) carry-forward because of recent operating losses.   On January 1, 2021, Paoli, Inc., acquired all of Sienna's voting stock for $1,070,000. Paoli expects to extract operating synergies by integrating Sienna's software into its own products. Paoli also hopes that Sienna will be able to receive a future tax reduction from its NOL. Assume an applicable federal income tax rate of 21 percent.   If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carry-forward, how much goodwill should Paoli recognize from the acquisition? If there is a less than 50 percent chance that the…
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