Question

Sunland Company’s 12/31/18 balance sheet reports assets of $6940000 and liabilities of $2740000. All of Sunland’s assets’ book values approximate their fair value, except for land, which has a fair value that is $414000 greater than its book value. On 12/31/18, Horace Wimp Corporation paid $7074000 to acquire Sunland. What amount of goodwill should Horace Wimp record as a result of this purchase?

Answer 1

Answer:

$2,460,000

Explanation:

For computing the cost of the goodwill, first we have to calculate the fair value of the net asset which is shown below:

The fair value of net asset = The fair market value of assets + excess value of land  - the fair market value of liabilities

= $6,940,000 + $414,000  - $2,740,000

= $4,614,000

And, the purchase value of Sun land is $7,074,000

So, the goodwill would be  

= $7,074,000 - $4,614,000

= $2,460,000