Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 20X1. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts: Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of Vicker's outstanding stock. In this acquisition transaction, how much goodwill should be recognized?

Question

Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 20X1. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts:  Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of Vicker's outstanding stock. In this acquisition transaction, how much goodwill should be recognized?

Quizplus · Accepted Answer

Goodwill is calculated as the excess of acquisition cost over the fair value of net identifiable assets acquired. 
The total cost of the acquisition is: 12,000 shares x ($5 par value + $47 fair value) = $624,000 
The fair value of Vicker's net identifiable assets is: 
Total Assets = $450,000 + $600,000 + $150,000 + $150,000 = $1,350,000 
Total Liabilities = $300,000 + $90,000 + $120,000 = $510,000 
Net Identifiable Assets = $840,000 
Therefore, the goodwill recognized is: $624,000 - $840,000 = $104,000.