Question

Blue Sky Company's 12/31/21 balance sheet reports assets of $7000000 and liabilities of $2800000. All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $420000 greater than its book value. On 12/31/21, Horace Wimp Corporation paid $7140000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase?

a. $140000
b. $2940000
c. $0
d. $2520000

Answer 1

d. $2520000

Step-by-step explanation:

For computing the cost of the goodwill, first we have to calculate the fair value of the net asset which is shown below:

The fair value of net asset = Assets - liabilities + excess value

= $7,000,000 - $2,800,000 + $420,000

= $4,620,000

And, the acquired value of Blue sky is $7,140,000

So, the goodwill would be

= $7,140,000 - $4,620,000

= $2,520,000