On November 30, 2016, Piani Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company. Surge 's balance sheet at November 30, 2016, showed a book value of $8,000,000. Additionally, the fair value of Surge's property, plant, and equipment on November 30, 2016, was $1,200,000 in excess of its book value. What amount, if any, will be shown in the balance sheet caption "Goodwill" in the November 30, 2016, consolidated balance sheet of Piani Incorporated, and its wholly owned subsidiary, Surge Company?
A) $0.
B) $800,000.
C) $1,200,000.
D) $2,000,000.

Question

Quizplus · Accepted Answer

The excess of the purchase price over the book value of the net assets acquired is goodwill. The purchase price was $25 per share x 400,000 shares = $10,000,000. The book value of the net assets acquired was $8,000,000. Therefore, the goodwill is $10,000,000 - $8,000,000 = $2,000,000. However, the fair value of the property, plant, and equipment is $1,200,000 in excess of its book value. Therefore, the goodwill is reduced by $1,200,000 to $800,000.

On November 30, 2016, Piani Incorporated Purchased for Cash of $25