On April 1, 19X6, Place Company paid $400,000 for all the issued and outstanding

Question

On April 1, 19X6, Place Company paid $400,000 for all the issued and outstanding common stock of Show Corporation in a transaction properly accounted for as a purchase. Show Corporation was dissolved. Show’s book shows assets and liabilities on April 1, 19X6, as follows:

      Cash                                                                      $ 40,000

      Inventory                                                                120,000

      Property and equipment (net of accumulated      

            depreciation of $160,000)                                 240,000

      Liabilities                                                                (90,000)

      On April 1, 19X6, the current value of Show’s inventory was $95,000, and its property and equipment (net) had a current value of $280,000. What is the amount of goodwill as a result of the business combination?

$-0-

$25,000

$90,000

$75,000

A.

$-0-

B.

$25,000

C.

$90,000

D.

$75,000

Explanation / Answer

Answer . D. $75,000

Explanation :

Computation of goodwill

Particular Amount($) Amount($) Value of purchase consideration 400,000 Less : Net assets acquired Cash 40,000 Inventory (Fair value) 95,000 Property and equipment (Fair value) 280,000 Liabilities (90,000) 325,000 Goodwill Value $75,000

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