Question

On January 1, 2019, in a merger transaction, Maxi Company paid $371,000 in cash for 100% of the outstanding common stock of Mini Company. The fair value of Mini Company's plant and equipment was $147,000 on the date of acquisition. If the fair value and book value are the same for Mini's remaining assets and liabilities, what is the net increase in Maxi's assets only, after paying the cash for Mini?

Answer 1

Answer:

$224,000

Explanation:

Goodwill from acquiring Mini Company = Cash consideration paid - Fair value of Mini Company's plant and equipment = $371,000 - $147,000 = $224,000

The net increase in Maxi's assets only after paying the cash for Mini is $224,000 i.e. the goodwill from acquiring Mini Company.