Woof Co. acquired all of Meow Co. for $502,000 cash in a tax-free transaction. On that date, the subsidiary had net assets with a $480,000 fair value but a $400,000 book value and income tax basis. The income tax rate was 30%. What amount of goodwill should have been recognized on the date of the acquisition?

Question

Quizplus · Accepted Answer

Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired. The purchase price is $502,000, and the fair value of net assets is $480,000. Therefore, goodwill is $502,000 - $480,000 = $22,000.

Woof Co Acquired All of Meow Co