9.02 - GOODWILL Flashcards
9.02 - GOODWILL
On September 29, 20X5, Wall Co. paid $860,000 for all the issued and outstanding common stock of Hart Corp.On that date, the carrying amounts of Hart’s recorded assets and liabilities were $800,000 and $180,000, respectively. Hart’s recorded assets and liabilities had fair values of $840,000 and $140,000, respectively.
In Wall’s September 30, 20X5, balance sheet, what amount should be reported as goodwill?
$20,000
$240,000
$180,000
$160,000
$160,000
EXPLANATION:
Goodwill is determined by calculating the difference between consideration given and the fair value of net assets received.
Consideration given was $860,000 and the fair value of the net assets received was $700,000 (840,000 – 140,000).
Goodwill is the difference of $160,000.
9.02 - GOODWILL
On December 31, 20X2, X Company paid $3,600,000 for 100% of the stock of Y Company when Y’s underlying net assets had a fair value of $2,800,000. Almost immediately after the acquisition, X paid $240,000 for anadvertising campaign that was designed to maintain goodwill.
How much will be reported as goodwill on X Company’s December 31, 20X3 balance sheet?
$1,040,000
$800,000
$780,000
$1,014,000
$800,000
EXPLANATION;
Goodwill is recognized as a result of a business combination in an amount equal to the difference between the consideration given, $3,600,000, and the fair value of the acquiree’s underlying net assets, $2,800,000, or $800,000.
Costs incurred for the purpose of enhancing or maintaining goodwill are not added to goodwill and are recognized as expenses when incurred.
In addition, goodwill is not amortized. As a result, the carrying value at December 31, 20X3 will be $800,000.
