Question

computing goodwill goldstar inc. acquired all assets and assumed all liabilities of silver company at a cash purchase price of $1,960,000. the carrying value of the assets acquired was $2,600,000 and the carrying value of the liabilities acquired was $1,000,000. goldstar inc. estimated that assets were undervalued by $200,000 due to unrecorded intangibles of $150,000 (fair value) and undervalued land and equipment of $50,000 (as compared to fair value). determine the amount of goodwill recorded by goldstar inc. upon purchase of silver company.

Answer 1

The goodwill recorded by Goldstar Inc. upon purchasing Silver Company is $160,000, determined by subtracting the value of the net identifiable assets ($1,800,000) from the purchase price ($1,960,000).

Step-by-step explanation:

To calculate goodwill for Goldstar Inc.'s acquisition of Silver Company, determine the fair value of the identifiable assets and liabilities. The fair value of the assets acquired is calculated by adding the carrying value of the assets to the additional fair value identified, which in this case is the undervalued assets ($2,600,000 + $200,000 = $2,800,000). Then, subtract the carrying value of the liabilities assumed ($1,000,000).

The value of the net assets acquired by Goldstar Inc. is thus $1,800,000 ($2,800,000 - $1,000,000). To compute the goodwill, you subtract this value from the purchase price of Silver Company ($1,960,000 - $1,800,000). Therefore, the amount of goodwill recorded by Goldstar Inc. is $160,000.