Question

Dennis Company purchases Miles Company for $4,200,000 cash on January 1, 2015. The book value of Miles Company's net assets reported on its December 31, 2014 financial statement was $3,800,000. An analysis indicated that the fair value of Miles's tangible assets exceeded the book value by $600,000, and the fair value of identifiable intangible assets exceeded book value by $320,000. What amount of gain or goodwill is recognized by Dennis

Answer 1

Answer: $520,000

Step-by-step explanation:

The amount of gain or goodwill is recognized by Dennis would be calculated as:

Book value of net asset = $3,800,000

Add: Increase in the fair value of Miles's tangible assets = $600,000

Add: Increase in the fair value of identifiable intangible assets = $320,000

Fair value of net asset = $4,720,000

Less: Cash paid for purchase = $4,200,000

Gain = $4,720,000 - $4,200,000

= $520,000