Question

On July 1, 20X9, Link Corporation paid $340,000 for all of Tinsel Company's outstanding common stock. On that date, the costs and fair values of Tinsel's recorded assets and liabilities were as follows: Cost Fair Value Cash and Receivables $50,000 $50,000 Inventory 120,000 125,000 Buildings and Equipment (net) 200,000 240,000 Liabilities (100,000) (100,000) Net assets $270,000 $315,000 Based on the preceding information, the differential reflected in a consolidation worksheet to prepare a consolidated balance sheet immediately after the business combination is:

Answer 1

Answer:

Goodwill = 25,000

Explanation:

Goodwill is an intangible asset, is the differential reflected in a consolidated balance sheet immediately after the business combination between the purchase price of a company and the fair market value of identifiable assets and liabilities. Goodwill is recorded when the purchase price is higher than the sum of the fair value of all identifiable tangible and intangible assets purchased in the acquisition and the liabilities assumed in the process.

In this case:

Goodwill = Purchse Price - Net assets fair value

Goodwill = 340,000 - 315,000

Goodwill = 25,000

The difference between the book value and fair value of the acquired company are adjustments to the amount presented in the consolidated balance sheet.