Question

On February 5, King Corporation paid $1,600,000 for all the issued and outstanding common stock of Princess, Inc., in a transaction properly accounted for as an acquisition. The book values and fair values of Princess's assets and liabilities on February 5 were as follows: Book Value Fair Value Cash $ 160,000 $160,000 Receivables (net) 180,000 180,000 Inventory 315,000 300,000 Plant and equipment (net) 820,000 920,000 Liabilities (350,000) (350,000) Net assets $1,125,000 $1,210,000 What is the amount of goodwill resulting from the business combination? A. $400,000 B. $475,000. C. $85,000. D. $390,000.

Answer 1

Answer:

$390,000

Explanation:

The computation of the amount of goodwill resulting from the business combination is shown below:

= Paid amount for all issued & outstanding common stock - net assets fair value

= $1,600,000 - $1,210,000

= $390,000

We simply applied the above formula

Hence, the correct option is D.

All other information which is given in the question is not relevant. hence, ignored it