Homework answers / question archive / Sienna Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements

Sienna Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements

Accounting

Share With

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 $985,000 and represent Sienna's sole
asset. Although Sienna currently has no liabilities, the company has a $158,000 net operating loss (NOL) carry-forward because of
2.85 recent operating losses.
points
On January 1, 2021, Paoli, Inc., acquired all of Sienna's voting stock for $1,170,000. 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
a) NOL. Assume an applicable federal income tax rate of 21 percent.
eBook
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?
Print b. If there is a less 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?