Issue stock, goodwill, pro forma disclosure.
Part A. Garman International wants to expand its operations and decides to acquire the net assets of Iris Company as of January 1, 2016. Garman issues 10,000 shares of its $5 par value common stock for the net assets of Iris. Garman’s stock is selling for $27 per share. In addition, Garman pays $10,000 in acquisition costs. A balance sheet for Iris Company as of December 31, 2015, is as follows:
In reviewing Iris’s balance sheet and in consulting with various appraisers, Garman has determined that the inventory is understated by $2,000, the land is understated by $10,000, the building is understated by $15,000, and the copyrights are understated by $4,000. Garman has also determined that the equipment is overstated by $6,000, and the patent is overstated by $5,000.