Question

Dotel Company's 12/31/15 balance sheet reports assets of $9,000,000 and liabilities of $3,750,000. All of Dotel's assets' book values approximate their fair value, except for land, which has a fair value that is $600,000 greater than its book value. On 12/31/15, Egbert Corporation paid $9,150,000 to acquire Dotel. What amount of goodwill should Egbert record as a result of this purchase?

Answer 1

To calculate the goodwill recorded by Egbert Corporation in the purchase of Dotel Company, we need to determine the fair value of the identifiable net assets acquired. The goodwill recorded would be the difference between the purchase price and the net assets acquired.

Step-by-step explanation:

To calculate the goodwill recorded by Egbert Corporation in the purchase of Dotel Company, we need to determine the fair value of the identifiable net assets acquired.

Given that all of Dotel's assets' book values approximate their fair value, except for the land, which has a fair value that is $600,000 greater than its book value, we can determine the fair value of the land by adding $600,000 to its book value.

The net assets acquired can be calculated as follows:

Net assets acquired = Fair value of assets - Fair value of liabilities

Net assets acquired = ($9,000,000 + $600,000) - $3,750,000 = $5,850,000

The goodwill recorded by Egbert Corporation in the purchase of Dotel Company would be the difference between the purchase price and the net assets acquired:

Goodwill = Purchase price - Net assets acquired

Goodwill = $9,150,000 - $5,850,000 = $3,300,000