Question

Monroe Company purchased 80% of Adams Company on January 1, 20X1. The purchase price paid was $600,000. On that day, the book value of Adams was $500,000. Excess of cost over book value is due to goodwill. Included in Adams's income are intercompany sales to Monroe of $40,000 with a cost to Adams of $25,000. 30% of this inventory is on hand in the Monroe inventory at December 31, 20X3. In addition, inventory sold at a profit of $5,000 was in the inventory of Monroe at December 31, 20x2. Adams reported income of $100,000 in 20x3 but paid no dividends. Prepare a schedule of Excess of Cost over Book Value at the date of purchase.

Answer 1

The Excess of Cost over Book Value for the Monroe Company's acquisition of Adams Company is $100,000, which is the difference between the purchase price of $600,000 and the book value of Adams Company at $500,000.

Step-by-step explanation:

The student is asking for the preparation of a schedule of Excess of Cost over Book Value at the date of purchase regarding the acquisition of Adams Company by Monroe Company. The purchase price was $600,000 and the book value of Adams Company was $500,000. The excess cost over book value is attributed to goodwill, which is the unidentifiable asset that represents future economic benefits arising from assets that are not capable of being individually identified and separately recognized.

The calculation for the excess cost over book value would be the purchase price minus the book value of the acquired company. Given the information, the calculation is as follows: $600,000 (purchase price) minus $500,000 (book value of Adams) equals $100,000. Therefore, the excess of cost over book value, which is attributable to goodwill, is $100,000.