Question

On May 1, 2016, the Phil Company paid $900,000 for 90% of the outstanding common stock...

On May 1, 2016, the Phil Company paid $900,000 for 90% 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

$150,000

Inventory

350,000

Property & equipment (Net of accumulated depreciation)           

900,000

Liabilities

200,000

On May 1, 2016, it was determined that the inventory of Sage had a fair value of $250,000 and the property and equipment (net) has a fair value of $650,000. What is the amount of goodwill resulting from the business combination?

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Answer #1

Answer :-

Step :1

Amount paid for 90% share $900,000
Implied value of sage corporation( $900,000/90%) $1,000,000

Step :2

Fair value of net assets of sage corporation
Particulars Amount ($)
Cash 150,000
Inventory 250,000
Property $ equipment ( Net of accumulated depreciation) 650,000
Total assets 1,050,000
Less : Liability (200,000)
Fair value of net assets of sage corporation 850,000

Good will =  Implied value - Fair value of net asset

Good will = $1,000,000 - $850,000

Good will = $150,000.

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