Question

Northern purchased the entire business of southern including all its assets and liabilities for $600,000 on december 31, 2024. below is information related to the two companies at that date: northern southern fair value of assets $ 1,050,000 $ 800,000 fair value of liabilities 575,000 300,000 reported assets 800,000 650,000 reported liabilities 500,000 250,000 net income for the year 60,000 50,000 how much goodwill did northern pay for acquiring southern? multiple choice

O $300,000
O $200,000
O $100,000
O $150,000

Answer 1

Northern paid $100,000 in goodwill for the acquisition of Southern, which is calculated by subtracting the fair value of Southern's net assets from the purchase price.

Step-by-step explanation:

To calculate the amount of goodwill Northern paid for acquiring Southern, we start with the purchase price of the entire business and subtract the fair value of Southern's net assets (assets minus liabilities) at the time of acquisition. The fair value of Southern's net assets is calculated as follows:

Fair value of assets: $800,000
Fair value of liabilities: $300,000
Net assets fair value: $800,000 - $300,000 = $500,000

Therefore, the goodwill paid by Northern is:

Purchase price: $600,000
Net assets fair value: $500,000
Goodwill: $600,000 - $500,000 = $100,000