Question

Carla Vista Company purchases Sandhill Company for $2470000 cash on January 1, 2021. The book value of Sandhill Company’s net assets, as reflected on its December 31, 2020 balance sheet is $1923000. An analysis by Carla Vista on December 31, 2020 indicates that the fair value of Sandhill’s tangible assets exceeded the book value by $190500, and the fair value of identifiable intangible assets exceeded book value by $142500. How much goodwill should be recognized by Carla Vista Company when recording the purchase of Sandhill Company?

Answer 1

Answer: $214000

Explanation:

The amount of goodwill that should be recognized by Carla Vista Company when recording the purchase of Sandhill Company will go thus:

Book value of net assets = $1923000

Add: Excess fair value of tangible asset = $190500

Add: Excess fair value of intangible assets = $142500

Fair value of net assets = $1923000 + $190500 + $142500 = $2256000

Therefore, Goodwill will be:

=Cash paid for purchase - Fair value of net assets

= $2470000 - $2256000

= $214000