The DOC Corporation with a book value of $20 million and a market value of $30 million has merged with the CIC Corporation with a book value of $6 million and a market value of
$8 million at a price of $9 million. If the transaction is a purchase will there be any goodwill, and if so, what is the amount of goodwill?

Question

Quizplus · Accepted Answer

The calculation for goodwill in a purchase transaction is:
Purchase price - fair market value of net assets acquired
In this case, the purchase price is $9 million and the fair market value of net assets acquired is ($30 million + $8 million) - ($20 million + $6 million) = $12 million
Therefore, goodwill is $9 million - $12 million = -$3 million. Since negative goodwill is not possible, the amount is recorded as $0.

The DOC Corporation with a Book Value of $20 Million