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IOU Inc.purchased all of the outstanding common shares of UNI Inc.for $800,000.On the date of acquisition,UNI's assets included $2,000,000 of Inventory and Land with a Book value of $120,000.UNI also had $1,400,000 in Liabilities on that date.UNI's book values were equal to their fair market values,with the exception of the company's Land,which was estimated to have a fair market value which was $50,000 higher than its book value.
-How much goodwill would be created by IOU's acquisition of UNI?
A)$30,000
B)$50,000.
C)$80,000.
D)Nil.

Question

Quizplus · Accepted Answer

The goodwill is calculated as the purchase price minus the fair market value of net assets acquired. The fair market value of net assets is $2,000,000 (Inventory) + $170,000 (Land: $120,000 book value + $50,000 fair value adjustment) - $1,400,000 (Liabilities) = $770,000. The purchase price is $800,000, so goodwill is $800,000 - $770,000 = $30,000.

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