Question

Kasper Corporation acquired all outstanding shares of Paddy Ltd. for $4.2 million. Selected information relating to Paddy was as follows:

Fair value of identifiable net assets: $4.0 million
Book value of identifiable net assets: $3.1 million
Cash balance: $0.1 million
Kasper will recognize goodwill of：

$1.1 million
$0.2 million
$3.0 million
$4.1 million

Answer 1

Kasper Corporation will recognize goodwill of $0.2 million, which is calculated by subtracting the fair value of Paddy Ltd.'s identifiable net assets ($4.0 million) from the purchase price of $4.2 million.

Step-by-step explanation:

The student's question regards the calculation of goodwill in a business acquisition scenario. Goodwill is calculated as the excess of the purchase price of an acquired company over the fair value of its identifiable net assets. In this case, Kasper Corporation acquired Paddy Ltd. for $4.2 million whereas the fair value of Paddy's identifiable net assets was $4.0 million. Therefore, the goodwill recognized would be the difference between these two amounts, which is $0.2 million.