Question

Anderson Company acquires Thompson Company by paying $30 million in cash. The fair value of the identifiable assets acquired is $38 million. The fair value of the identifiable liabilities acquired is $6 million. What will be the amount of goodwill that Anderson Company would record as part of this acquisition?

Answer 1

Answer:

The fair value of the assets of the identifiable assets of Thompson company are $38 million and the fair value of identifiable liabilities is $6 million. So if we were to find the value of Thompson company just on the basis of identifiable assets and identifiable liabilities we would subtract the identifiable liabilities from the identifiable assets.

38-6= $32 million.

This means that on the basis of Identifiable assets and identifiable liabilities the value of Thompson company is $32 million but they Anderson Company $ 30 million for the company which means that the company has a negative goodwill. The negative good will is the price paid - the fair value.

30 million - 32 million = -2 million

This means that Anderson Company will record -2 million as negative goodwill and this implies a bargain purchase which means Anderson company will record this 2 million as a gain on their income statement.

Explanation: