Mainline Produce Corporation acquired all the outstanding common stock of Iceber

Question

Mainline Produce Corporation acquired all the outstanding common stock of Iceberg Lettuce Corporation for $32,000,000 in cash. The book values and fair values of Iceberg’s assets and liabilities were as follows:

Calculate the amount paid for goodwill. (Enter your answer in millions.)

Mainline Produce Corporation acquired all the outstanding common stock of Iceberg Lettuce Corporation for $32,000,000 in cash. The book values and fair values of Iceberg’s assets and liabilities were as follows:

Explanation / Answer

Goodwill is an intangible asset.It arises when acquisition of one company by another company for a premium value.

It computed by using following formula

Goodwill    =     (Fair value of consideration paid +Fair value of non- controlling interest) – Fair value of net intangible assets

FV value of assets =   15,600,000+ 31,200,000+ 5,200,000

                                   =     $ 52,000,000

FV value of liabilities   =   8,000,000+14,000,000

                                          =    $ 22,000,000

FV of net intangible assets = $ ( 52,000,000 -22,000,000)

                                                      = $ 30,000,000

Fair value of consideration = $ 32,000,000

Goodwill   =   $32,000,000 - $ 30,000,000

                  = $ 2,000,000

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