Gongman Corp.owned the following assets when it came out of a Chapter 11 bankruptcy:

Gongman Corp.had a fresh start reorganization value of $1,000,000.What amount of goodwill should have been recognized in recording the reorganization?

Question

Gongman Corp.owned the following assets when it came out of a Chapter 11 bankruptcy:

Gongman Corp.had a fresh start reorganization value of $1,000,000.What amount of goodwill should have been recognized in recording the reorganization?

Quizplus · Accepted Answer

In a fresh start reorganization, the assets are recorded at their fair values, which may result in recognizing goodwill. Since the fresh start reorganization value is $1,000,000 and the assets have a fair value of $900,000 (10% less), the amount of goodwill is $100,000 ($1,000,000 - $900,000). Therefore, the correct answer is B.