Nadine's Home Fashions has $2.12 million in net working capital. The firm has fixed assets with a book value of $31.64 million and a market value of $33.9 million. The firm has no long-term debt. The Home Centre is buying Nadine's for $37.5 million in cash. The acquisition will be recorded using the purchase accounting method. What is the amount of goodwill that The Home Centre will record on its balance sheet as a result of this acquisition?
A) $1.48 million
B) $3.34 million
C) $3.74 million
D) $4.14 million
E) $5.86 million

Question

Quizplus · Accepted Answer

The amount of goodwill is the excess of the purchase price over the fair value of the acquired net assets. The fair value of the acquired net assets is the sum of the market value of the fixed assets and the net working capital. Therefore, the amount of goodwill is $37.5 million - ($33.9 million + $2.12 million) = $1.48 million.

Nadine's Home Fashions Has $2