Transcribed Image Text: 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 subsidiary will be able to utilize the NOL carry-forward, how
much goodwill should Paoli recognize from the acquisition?
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
