On June 30, 2011, Hi-Tech Inc. purchased for cash at $50 per share all 150,000 shares of outstanding common stock of Skicraft Company. Skicraft's balance sheet at June 30, 2011, showed net assets with a book value of $6,000,000. The fair value of Skicraft's property, plant, and equipment on June 30, 2011, was $800,000 in excess of its book value. What amount, if any, will be recorded by Hi-Tech as goodwill on the date of purchase?

Question

Quizplus · Accepted Answer

The fair value of Skicraft's property, plant, and equipment on June 30, 2011, was $800,000 in excess of its book value. This means that the fair value of Skicraft's assets was $6,800,000 ($6,000,000 + $800,000). Hi-Tech paid $50 per share for all 150,000 shares of Skicraft's common stock, for a total of $7,500,000 ($50 x 150,000). Therefore, the goodwill recorded by Hi-Tech on the date of purchase will be $700,000 ($7,500,000 - $6,800,000).