Cowan Ltd. acquired 100% of the net assets of Opus Co. for $1,120,000. At the time of acquisition, Opus had the following: $\begin{array}{|l|r|r|}
\hline& \text { Book Value } & \text { Fair value } \
\hline \text { Inventory } & \$ 2,800,000 & \$ 2,800,000 \
\hline \text { Land } & 168,000 & 238,000 \
\hline \text { Liabilities } & 1,960,000 & 1,960,000 \
\hline
\end{array}$ In this acquisition, how much goodwill has been created?
A)$0
B)42,000
C)$70,000
D)$112,000

Question

Cowan Ltd. acquired 100% of the net assets of Opus Co. for $1,120,000. At the time of acquisition, Opus had the following: $\begin{array}{|l|r|r|} 
\hline& \text { Book Value } & \text { Fair value } \
\hline \text { Inventory } & \$ 2,800,000 & \$ 2,800,000 \
\hline \text { Land } & 168,000 & 238,000 \
\hline \text { Liabilities } & 1,960,000 & 1,960,000 \
\hline
\end{array}$ In this acquisition, how much goodwill has been created?
A)$0
B)42,000
C)$70,000
D)$112,000

Quizplus · Accepted Answer

The goodwill is the difference between the purchase price and the fair value of the net assets acquired. In this case, the purchase price is $1,120,000 and the fair value of the net assets acquired is $2,800,000 + $238,000 - $1,960,000 = $1,078,000. Therefore, the goodwill is $1,120,000 - $1,078,000 = $42,000.

Cowan Ltd Acquired 100% of the Net Assets of Opus Co