Question

Kosher pickle company acquires all the outstanding stock of Midwest Produce for $13.5 million. The fair value of Midwest's assets is $9.1 million. The fair value of Midwest's liabilities is $1.5 million. Calculate the amount paid for goodwill.

Option 1: $2.9 million
Option 2: $3.9 million
Option 3: $4.9 million
Option 4: $5.9 million

Answer 1

The amount paid for goodwill in the acquisition of Midwest Produce by Kosher Pickle Company is calculated to be $5.9 million, as it is the excess of the purchase price over the fair value of the acquired net assets.

Step-by-step explanation:

The question is asking to calculate the amount paid for goodwill during the acquisition of Midwest Produce by Kosher Pickle Company. Goodwill is calculated as the excess of the purchase price over the fair value of the net assets (assets minus liabilities) acquired. To find the goodwill amount, we first calculate the fair value of the net assets: $9.1 million (assets) - $1.5 million (liabilities) = $7.6 million. The next step is to subtract this amount from the purchase price, which is $13.5 million. The calculation would be $13.5 million - $7.6 million = $5.9 million. Therefore, the amount paid for goodwill is $5.9 million.