During 20X4, Manning Corporation purchased 100% of the outstanding voting shares of Brady Corporation for $4.0 million. Brady's assets had a book value of $5.0 million and fair market value of $6.5 million. The book value as well as fair market value of Brady's liabilities equaled $3.2 million. How much was paid for goodwill?
A) $0
B) $2,200,000
C) $700,000
D) $1,000,000

Question

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair market value of net assets acquired. The fair market value of net assets is $6.5 million (assets) - $3.2 million (liabilities) = $3.3 million. Goodwill is $4.0 million (purchase price) - $3.3 million (net assets) = $0.7 million or $700,000.

During 20X4, Manning Corporation Purchased 100% of the Outstanding Voting