Question

Nadine’s Home Fashions has $2.12 million in net working capital. The firm has fixed assets with a book value of $31.64 million and a market value of $33.9 million. The firm has no long-term debt. The Home Centre is buying Nadine’s for $37.5 million in cash. The acquisition will be recorded using the purchase accounting method. What is the amount of goodwill that The Home Centre will record on its balance sheet as a result of this acquisition?​

Answer 1

The amount of goodwill that The Home Centre will record on its balance sheet as a result of this acquisition is $1.48 ($37.5-$ 36.02) million. The amount of goodwill could occur if there is a difference between the investment amount and the net asset of a company. In this problem, we can calculate the company's net asset with this calculation: $2.12+$33.9=$36.02. Fair value amount is used for acquisition accounting using the purchase method.