Question

The notes to a recent annual report from Weebok Corporation indicated that the company acquired another company, Sport Shoes, Inc.
Assume that Weebok acquired Sport Shoes on January 5 of the current year. Weebok acquired the name of the company and all of its assets for $502,000 cash. Weebok did not assume the liabilities.

The transaction was closed on January 5 of the current year, at which time the balance sheet of Sport Shoes reflected the following book values and an independent appraiser estimated the following market values for the assets:

Sport Shoes, Inc.
January 5 of the Current Year Book Value Market Value
Accounts receivable (net) $35,000 $35,000
Inventory 210,000 183,000
Fixed assets (net) 23,000 46,500
Other assets 10,000 16,000
Total Assets $278,000
Liabilities $72,000
Stockholders' equity 206,000
Total liabilities and stockholders' equity $278,000

Required:
Compute the amount of goodwill resulting from the purchase.

Answer 1

Answer:

$221,500

Explanation:

The computation of the amount of the goodwill is shown below:

Goodwill = Acquiring value - fair market value of all assets

where,

Acquiring value = $502,000

And, the fair market value of all assets is

= Account receivable market value + inventory market value + fixed assets market value + other assets market value

= $35,000 + $183,000 + $46,500 + $16,000

= $280,500

So, the goodwill is

= $502,000 - $280,500

= $221,500