Question

Bend Company’s December 31, 2020 balance sheet reports assets of $13,210,000 and liabilities of $4,275,000. The book values of Bend’s assets approximate their fair values, except for land, which has a fair value $600,000 greater than its book value. On December 31, 2020, Blue Corporation paid $11,775,000 to acquire Bend. What amount of goodwill should Blue record as a result of this purchase?

Answer 1

Answer:

Blue should record $2,240,000 of goodwill as a result of this purchase.

Explanation:

Fair value of Assets = $13,210,000 + $600,000 = $13810,000

Liabilities = $4,275,000

Net Asset = Total fair value of asset – Total Liabilities

Net Assets = $13,810,000 – $4,275,000 = $9,535,000

Goodwill = Acquisition price – Net Assets

Goodwill = $11,775,000 - $9,535,000 = $2,240,000

Blue should record $2,240,000 of goodwill as a result of this purchase.