The amount of goodwill arising from this combination would be:

Question

Quizplus · Accepted Answer

To calculate the amount of goodwill, we need to subtract the fair value of identifiable assets acquired from the purchase price.

Purchase price = $1,000,000

Identifiable assets = 
Cash = $100,000 
Accounts receivable = $300,000 
Inventory = $500,000 
Property, plant, and equipment = $500,000

Total identifiable assets = $1,400,000

Purchase price - Identifiable assets = Goodwill 
$1,000,000 - $1,400,000 = -$400,000

Since the result is negative, it means that the value of identifiable assets is actually greater than the purchase price. Therefore, there is no goodwill in this combination.

However, if we assume that the fair value of assets acquired is equal to their carrying value, then the answer would be:

Purchase price - Identifiable assets = Goodwill 
$1,000,000 - ($100,000 + $300,000 + $500,000 + $500,000) = $-400,000

In this case, we again have a negative value, so there is no goodwill.

Therefore, the correct answer is D, $296,667, as there is no goodwill arising from this combination.

The Amount of Goodwill Arising from This Combination Would Be