Explain how Doltron Co. will account for goodwill. Assume Doltron Co. paid $18 m

Question

Explain how Doltron Co. will account for goodwill.

Assume Doltron Co. paid $18 million to purchase Bailey Industries. Assume further that Bailey Industries had the following summarized data at the time of the Doltron Co. acquisition (amounts in millions): Bailey Industries Assets Liabilities and Equity $24 19 $43 $17 Total liabilities 26 Stockholderse $43 Long-term assets Bailey Industries' current assets had a current market value of $17 million, long-term assets had a current market value of only $21 million, and liabilities had a market value of $24 million.

Explanation / Answer

Calculate amount of goodwill :

Current assets 17 Long term assets 21 Less: Liabilities (24) Net assets 14 Less: Purchase price (18) Goodwill 4

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