On May 1, 2013, the Phil Company paid $1,200,000 for 80% of the outstanding common stock of Sage Corporation in a transaction properly accounted for as an acquisition.The recorded assets and liabilities of Sage Corporation on May 1, 2013, follow: $\begin{array}{lr}
\text { Cash } & \$ 100,000 \
\text { Inventory } & 200,000 \
\text { Property \& equipment (Net of accumul ated depreciation) } & 800,000 \
\text { Liabilities } & (160,000)
\end{array}$ On May 1, 2013, it was determined that the inventory of Sage had a fair value of $220,000 and the property and equipment (net) has a fair value of $1,200,000.What is the amount of goodwill resulting from the business combination?

Question

Quizplus · Accepted Answer

The fair value of Sage's net assets is $1,360,000 ($100,000 cash + $220,000 inventory + $1,200,000 property & equipment - $160,000 liabilities). Phil Company paid $1,200,000 for 80%, implying a total company valuation of $1,500,000. Goodwill is the excess of the purchase price over the fair value of net assets: $1,500,000 - $1,360,000 = $140,000.

On May 1, 2013, the Phil Company Paid $1,200,000 for 80