Question

The piazza baseball bat company acquired all of the outstanding common stock of dierdorf lumber for $3,500,000. the book values and fair values of dierdorf's assets and liabilities on the date of purchase were as follows: book value fair value current assets $ 860,000 $ 830,000 property, plant, and equipment 2,300,000 2,940,000 liabilities 600,000 600,000 piazza should record goodwill of: multiple choice

O $340,000
O $940,000
O $0
O $330,000

Answer 1

To calculate goodwill for the acquisition, subtract the fair values of liabilities from the fair values of assets to find net assets, then subtract from the purchase price. Piazza's goodwill for acquiring Dierdorf Lumber is $330,000, which is the excess of the purchase price over the net assets acquired.

Step-by-step explanation:

When calculating goodwill in the acquisition of a company, one must first sum the fair values of the acquired assets and subtract the fair values of the acquired liabilities from that amount to determine the net assets acquired.

If the purchase price exceeds this net asset value, the excess amount is recorded as goodwill. In the case of Piazza Baseball Bat Company acquiring Dierdorf Lumber, we must perform the following calculation:

• Aggregate the fair values of the assets: Current assets ($830,000) + Property, Plant, and Equipment ($2,940,000) = $3,770,000.
• Subtract the fair value of liabilities: $3,770,000 (Fair value of assets) - $600,000 (Liabilities) = $3,170,000 (Net assets acquired).
• Determine the goodwill amount: $3,500,000 (Purchase price) - $3,170,000 (Net assets) = $330,000.

Therefore, Piazza should record goodwill of $330,000, which is the correct option answer in the final answer.