On May 1, 2016, the Phil Company paid $1,200,000 for 80% of the outstanding comm

Question

On May 1, 2016, the Phil Company paid $1,200,000 for 80% of the outstanding common stock of Sage Corporation in a transaction properly accounted for as an acquisition. The recorded assets and liabilities of Sage Corporation on May 1, 2016, follow: Cash $100,000 Inventory 200,000 Property & equipment (Net of accumulated depreciation) 800,000 Liabilities (160,000) On May 1, 2016, it was determined that the inventory of Sage had a fair value of $220,000 and the property and equipment (net) has a fair value of $1,200,000. What is the amount of goodwill resulting from the business combination? a) $0. b) $112,000. c) $140,000. d) $28,000.

Explanation / Answer

Calculate goodwill :

So answer is b) $112000

Cash 100000 Inventory 220000 Property & equipment 1200000 Less: Liabiltiies -160000 Net assets value 1360000 80% value of net assets (1360000*80%) 1088000 Purchase consideration -1200000 Goodwill 112000

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