Question

In addition to the balance sheet, the acquired company has previously unrecorded in-process research and development valued at 22,000,000. If the acquirer's acquisition cost is 50,000,000, what is the reported goodwill?

1) 28,000,000
2) 30,000,000
3) 32,000,000
4) 34,000,000

Answer 1

Goodwill is calculated as the excess of the purchase price over the fair value of identifiable net assets. For the given acquisition cost of $50,000,000 and in-process research and development valued at $22,000,000, the reported goodwill would be $28,000,000.

Step-by-step explanation:

The question refers to the calculation of goodwill in a business acquisition scenario. Goodwill is an intangible asset that arises when a company is purchased for more than the fair value of its net assets. In this case, the acquirer pays $50,000,000 for the acquired company, which has an identifiable intangible asset of unrecorded in-process research and development valued at $22,000,000.

To calculate the reported goodwill, we subtract the fair value of the identifiable net assets from the acquisition cost. If the balance sheet of the acquired company reflects all assets and liabilities at fair value except for the newly identified research and development asset, the calculation would be $50,000,000 (acquisition cost) - $22,000,000 (in-process research and development), resulting in a reported goodwill value of $28,000,000, not $34,000,000.