What amount will be reported for goodwill as a result of this acquisition?

A)  $  30,000.

B)  $  55,000.

C)  $  65,000.

D)  $175,000.

E)  $ 200,000.

Answer: B 

Learning Objective: 02-05

Learning Objective: 02-08

Topic: Acquisition―Calculate goodwill or bargain

Topic: Intangibles acquired

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Goodwill = Excess of Consideration Paid Over Net Fair Value of Assets and Liabilities

Consideration Paid: Cash + Fair Value of Stock = $400,000 + ($36 × 10,000 shares) = $400,000 + $360,000 = $760,000

Fair Value of Assets = $80,000 (cash) + $160,000 (receivables) + $300,000 (inventory) + $130,000 (land) + $280,000 (buildings) + $75,000 (equipment) + $40,000 (trademark) = $1,065,000

Liabilities at Fair Value = $300,000 (long-term liabilities) + $60,000 (accounts payable) = $360,000

Net Assets and Liabilities: $705,000

Goodwill = $760,000 – $705,000 = $55,000