Question

goldstar inc. acquired all assets and assumed all liabilities of silver company at a cash purchase price of $1,372,000. the carrying value of the assets acquired was $1,820,000 and the carrying value of the liabilities acquired was $700,000. goldstar inc. estimated that assets were undervalued by $140,000 due to unrecorded intangibles of $105,000 (fair value) and undervalued land and equipment of $35,000 (as compared to fair value). determine the amount of goodwill recorded by goldstar inc. upon purchase of silver company.

Answer 1

Upon the purchase of Silver Company, Goldstar Inc. recorded $217,000 of goodwill.

Step-by-step explanation:

When Goldstar Inc. acquired Silver Company, it paid a cash purchase price of $1,372,000. The carrying value of the assets acquired was $1,820,000, while the carrying value of the liabilities acquired was $700,000. Goldstar Inc. believed that the assets were undervalued by $140,000 due to unrecorded intangibles worth $105,000 and undervalued land and equipment of $35,000. To determine the amount of goodwill recorded, we need to calculate the excess of the purchase price over the fair value of identifiable net assets.

The fair value of the assets acquired is $1,820,000 (carrying value) + $35,000 (undervalued land and equipment) = $1,855,000.

The fair value of the liabilities assumed remains at $700,000.

The excess of the purchase price over the fair value of identifiable net assets is calculated as:

Purchase price - (Fair value of assets - Fair value of liabilities)

$1,372,000 - ($1,855,000 - $700,000)

= $1,372,000 - $1,155,000

= $217,000

Therefore, Goldstar Inc. recorded $217,000 of goodwill upon its purchase of Silver Company.