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?

Question

Quizplus · Accepted Answer

The purchase price is $800,000. The net identifiable assets are calculated as: Inventory ($2,000,000) + Land ($120,000 + $50,000 fair value adjustment) - Liabilities ($1,400,000) = $770,000. Goodwill is the purchase price minus net identifiable assets: $800,000 - $770,000 = $30,000.

IOU Inc Purchased All of the Outstanding Common Shares of UNI