Question

Red Design purchased 100% of Blue Design’s outstanding stock for $200,000 cash. Red Design assumed 100%...

Red Design purchased 100% of Blue Design’s outstanding stock for $200,000 cash. Red Design assumed 100% of Blue Design’s liabilities. Below are the book values and fair values of the acquired assets and liabilities:

Book Value

Fair Value

Current Assets – Net

$100,000

$80,000

PPE – Net

$430,000

$625,000

Liabilities

$67,000

$82,000

How much goodwill should Red Design record? Please show all work.

Homework Answers

Answer #1
Calculation of goodwill(Bargin power )
Amount $
Purchase Consideration        200,000
Less: Fair value of Net Assets acquired
Current Assets -Net           80,000
PPE-Net        625,000
Liabilities          -82,000        623,000
Goodwill ( Bargin power )      - 423,000
There is no goodwill involved instead there is Bagin power of $ 423,000 because the fair value of Net assets acquired is more than the purchase consideration paid.
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