Question

Arizona Corp. acquired the business Data Systems for $320,000 cash and assumed all liabilities at the date of purchase. Data’s books showed Equipment of $260,000, Accounts Payable of $40,000, and Common Stock of $220,000. An appraiser assessed the fair market value of the equipment at $250,000 at the date of acquisition. Just prior to the acquisition, Arizona Corp. had $450,000 in Cash and Common Stock. At what value will Arizona required the equipment?

Answer 1

Answer:

The Goodwill to be booked in Arizona Corp’s Balance Sheet if they purchase business Data System is $110,000

Explanation:

The different between the purchased price and the fair market value is called "Goodwill"

The fair market value of business Data System = fair market value of assets – fair market value of liabilities = $250,000 - $40,000 = $210,000  

The Goodwill = the purchased price - air market value

= $320,000 - $210,000 = $110,000