Paccu Corporation acquired 100 percent of Sallee Company's common stock on January 1,20X7.Balance sheet data for the two companies immediately following the acquisition follow:
At the date of the business combination,the book values of Sallee's assets and liabilities approximated fair value except for inventory,which had a fair value of $55,000,and land,which had a fair value of $65,000.The fair value of land for Paccu Corporation was estimated at $90,000 immediately prior to the acquisition.
-Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$37,000
B)$22,000
C)$15,000
D)$0

Question

Paccu Corporation acquired 100 percent of Sallee Company's common stock on January 1,20X7.Balance sheet data for the two companies immediately following the acquisition follow:
  At the date of the business combination,the book values of Sallee's assets and liabilities approximated fair value except for inventory,which had a fair value of $55,000,and land,which had a fair value of $65,000.The fair value of land for Paccu Corporation was estimated at $90,000 immediately prior to the acquisition.
-Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$37,000 
B)$22,000 
C)$15,000 
D)$0

Quizplus · Accepted Answer

Goodwill is calculated as the excess of consideration transferred over the fair value of identifiable net assets acquired. In this case, the consideration transferred is the total book value of Sallee's common stock, which is $120,000. The fair value of identifiable net assets acquired is calculated as follows:

Inventory (fair value) = $55,000
Land (fair value) = $65,000
Total identifiable net assets (fair value) = $120,000 + $55,000 + $65,000 = $240,000

Since the fair value of identifiable net assets acquired exceeds the consideration transferred, there is no goodwill to be reported. Therefore, the answer is B) $22,000.

Paccu Corporation Acquired 100 Percent of Sallee Company's Common Stock