In 2014,First Company purchased Second Company for $16,000,000 cash.At the time of purchase,Second Company's assets had a fair market value of $28,000,000 and the liabilities had a fair market value of $13,000,000.At the time of purchase,Second Company's assets had a book value of $10,000,000 and the liabilities had a book value of $7,000,000.What amount of goodwill is recorded?

Question

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair market value of net assets (assets minus liabilities). Here, $16,000,000 - ($28,000,000 - $13,000,000) = $1,000,000.

In 2014,First Company Purchased Second Company for $16,000,000 Cash