Prolean Corporation acquired Setlan Company for $10,000,000 in cash, paid to Setlan's former owners. The carrying value of Setlan's reported net assets totaled $2,000,000 at the date of acquisition. Setlan's reported asset and liability values equaled their fair values, except for the following:
$$\begin{array} { | l | r | r | }
\hline & { \text { Fair Value } } & { \text { Book Value } } \
\hline \text { Inventory } & \$ 15,000 & \$ 40,000 \
\hline \text { Land } & 80,000 & 20,000 \
\hline \text { Identifiable intangible assets } & 400,000 & 0 \
\hline
\end{array}$$ The identifiable intangible assets meet ASC Topic 805 requirements for separate capitalization. Goodwill reported for this acquisition is:

Question

Prolean Corporation acquired Setlan Company for $10,000,000 in cash, paid to Setlan's former owners. The carrying value of Setlan's reported net assets totaled $2,000,000 at the date of acquisition. Setlan's reported asset and liability values equaled their fair values, except for the following:
$$\begin{array} { | l | r | r | } 
\hline & { \text { Fair Value } } &  { \text { Book Value } } \
\hline \text { Inventory } & \$ 15,000 & \$ 40,000 \
\hline \text { Land } & 80,000 & 20,000 \
\hline \text { Identifiable intangible assets } & 400,000 & 0 \
\hline
\end{array}$$ The identifiable intangible assets meet ASC Topic 805 requirements for separate capitalization. Goodwill reported for this acquisition is:

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair value of net identifiable assets. The fair value of net identifiable assets is $2,455,000 ($2,000,000 carrying value + $25,000 decrease in inventory + $60,000 increase in land + $400,000 identifiable intangible assets). Goodwill is $10,000,000 - $2,455,000 = $7,545,000.

Prolean Corporation Acquired Setlan Company for $10,000,000 in Cash, Paid