Woods Company has one depreciable asset valued at $800,000. Because of recent losses, the company has a net operating loss carryforward of $150,000. The tax rate is 30%. The company was acquired for $1,000,000. It is more likely than not that the tax benefit will be realized. Compute the goodwill recognized for consolidated financial statements.

Question

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair value of net identifiable assets. The fair value of the asset is $800,000, and the tax benefit from the net operating loss carryforward is $150,000 * 30% = $45,000. Therefore, the fair value of net identifiable assets is $800,000 + $45,000 = $845,000. Goodwill is $1,000,000 - $845,000 = $155,000.

Woods Company Has One Depreciable Asset Valued at $800,000