Server Solutions paid $200,000 to acquire Tabletz Inc., an electronic gadget-advertising website. At the time of the acquisition, Tabletz's balance sheet reported total assets of $200,000 and liabilities of $100,000. The fair market value of Tabletz's assets was $200,000. The fair market value of its liabilities was $100,000. How much goodwill did Server Solutions purchase as part of the acquisition of Tabletz?

Question

Quizplus · Accepted Answer

Goodwill represents the premium paid over the fair market value of the net assets acquired in an acquisition. In this case, Server Solutions paid $200,000 to acquire Tabletz Inc., and Tabletz's fair market value of assets and liabilities were both $200,000 and $100,000 respectively. Hence, the net assets of Tabletz were $100,000 ($200,000 - $100,000). Since Server Solutions paid $200,000 for the acquisition, the goodwill amount would be $100,000 ($200,000 - $100,000). Therefore, the correct answer is option C.

Server Solutions Paid $200,000 to Acquire Tabletz Inc