What is the amount of goodwill arising from this acquisition?

A)  $230.

B)  $120.

C)  $520.

D)  None.  There is a gain on bargain purchase of $230.

E)  None.   There is a gain on bargain purchase of $265.

Answer: D

Learning Objective: 02-05

Topic: Acquisition―Calculate goodwill or bargain

Difficulty: 2 Medium 

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Goodwill = Total Consideration Paid – Excess of Fair Value of Assets Acquired Over Liabilities Assumed

Total Consideration Paid: $800

Fair Value of Assets Acquired: Cash ($40) + $180 (Accounts Receivables) + $290 (Inventory) + $400(Land) + $500 (Buildings) = $1,050

Fair Value of Liabilities Assumed: $400 (Long Term Liabilities) + $80 (Accounts Payable) = $480

Bargain Purchase Gain:Consideration ($800) – Excess of Fair Value of Assets Acquired Over Liabilities Assumed ($1,050) = $250

Less Combination Expenses: $20

Total Gain on Purchase = $250 – $20 = $230