5 pointsSav On January 10th, P Company paid $2,000.000 for all the issued and ou

Question

5 pointsSav On January 10th, P Company paid $2,000.000 for all the issued and outstanding common stock of S Company in a transaction properly accounted for as an acquisition. The book values and fair values of S Company's assets and liabilities on January 10th were as follows: Cash Receivables (net) Inventory Plant and equipment (net) Liabilities Net assets Book Value $ 200,000 190,000 Fair Value s 200.000 190,000 250,000 875,000 275.000 750,000 (350,000) $1,065,000 (350,000) $1.165,000 What is the amount of goodwill resulting from the business combination? A. $835,000. C. $390,000. O D.$935,00.

Explanation / Answer

In any business combination, amount paid over and above the market value of net assets acquired is known as Goodwill.

Hence, Goodwill calculation is as follows:

Cash 200,000

Receivables 190,000

Inventory 250,000

PPE 875,000

Liabilities (350,000)

Net Assets (A)= 1165,000

Payment Made (B)= 2000,000

Amount of Goodwill = B – A = $835,000 i.e. A

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