Rommer Company purchases Daley Inc.for $960,000 cash on January 1,2017.The book value of Daley Company's net assets,as reflected on its December 31,2016 statement of financial position is $740,000.An analysis by Rommer on December 31,2016 indicates that the fair value of Daley's tangible assets exceeded the book value by $70,000,and the fair value of identifiable intangible assets exceeded book value by $35,000.How much goodwill should be recognized by Rommer Company when recording the purchase of Daley Inc.?

Question

Quizplus · Accepted Answer

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. In this case, the fair value of Daley's net tangible and intangible assets on December 31, 2016, is $805,000 ($740,000 + $70,000 + $35,000). Since Rommer purchased Daley for $960,000, there is an excess of $155,000 ($960,000 - $805,000). Therefore, goodwill should be recognized in the amount of $115,000 ($155,000 - $70,000 - $35,000). Thus, option B is the correct answer.

Rommer Company Purchases Daley Inc