26) On May 1, 2016, the Phil Company paid $1,200,000 for 80% of the outstanding
ID: 2521334 • Letter: 2
Question
26) 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.
I know the answer is C but can you step by step me to that answer?
Cash
$100,000
Inventory
200,000
Property & equipment (Net of accumulated depreciation)
800,000
Liabilities
(160,000)
Explanation / Answer
Solution:
Calculation of Goodwill
$$
$$
Consideration paid (A)
$1,200,000
Assets:
Cash
$100,000
Inventory
$220,000
Property & Equipment
$1,200,000
Less: Liabilities
($160,000)
Net Asset Value
$1,360,000
80% of Net Asset value (B)
$1,088,000
Amount of Goodwill (A – B)
$112,000
The correct option is b. $112,000
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Calculation of Goodwill
$$
$$
Consideration paid (A)
$1,200,000
Assets:
Cash
$100,000
Inventory
$220,000
Property & Equipment
$1,200,000
Less: Liabilities
($160,000)
Net Asset Value
$1,360,000
80% of Net Asset value (B)
$1,088,000
Amount of Goodwill (A – B)
$112,000
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