Suppose Parrot Mfg. purchases Clint Enterprises for $120 million in cash. For purposes of the acquisition, Clint's ﬁxed assets were appraised at $95 million. Further, assume Clint Enterprises has
Working capital of $15 million and no long-term debt. If Parrot Mfg. uses the purchase accounting
Method to account for the acquisition, goodwill of ______________ is created.

Question

Quizplus · Accepted Answer

Goodwill is the excess of the purchase price over the fair value of the acquired net assets. In this case, the purchase price is $120 million, the fair value of the fixed assets is $95 million, and the working capital is $15 million. Therefore, the goodwill is $120 million - $95 million - $15 million = $10 million.