5 points Save Ans on January 1oth P Company paid 2000000 for

5 points Save Ans on January 1oth, P Company paid $2.000.000 for all the issued and outstanding common stock of S Company in a transaction properly accounted for as an acquisition. The book values and fair values of S Company\'s assets and liabilities on January 10th were as follows: Book Value $ 200.000 190,000 Fair Value s 200.000 90,000 250,000 875,000 Cash Receivables (net) Inventory 275,000 750,000 Plant and equipment (net) Liabilities Net assets (350,000) $1,065,000 (350,000) 51,165,000 What is the amount of goodwill resulting from the business combination? O A. $390.000. B.5835.000 O D. $935.00.

Solution

Ans. Calculation of Goodwill of the firm

Step 1 : Calculation of Net Assets value of targeting company

Cash                            :   200000

Receivable        : 190000

Inventory                       :   250000

Property plant equipment:   875000

Less: Liabilities              : (350000)

Net Assets                    : 1165000

Purchase consideration paid : 2000000

Goodwill (2000000-1165000) = $835000

Correct Answer is B $835000