Question

Kosher Pickle Company acquires all the outstanding stock of Midwest Produce for $12.5 million. The fair value of Midwest's assets is $8.5 million. The fair value of Midwest's liabilities is $1.3 million. Calculate the amount paid for goodwill. (Enter your answer in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Answer 1

Answer:

Amount paid for goodwill=5.3 million

Explanation:

The expression for calculating goodwill is given by;

Goodwill = Consideration paid– Fair value of net identifiable assets

where;

Consideration paid=$12.5 million

Fair value of net identifiable assets=Midwest's assets-Midwest's liabilities

Midwest's assets=$8.5 million

Midwest's liabilities=$1.3 million

Fair value of net identifiable assets=(8.5 M-1.3 M)=7.2 million

Replace in the expression below;

Goodwill = Consideration paid– Fair value of net identifiable assets

Goodwill=12.5 M-7.2 M

Goodwill=5.3 million