Question

Short corporation acquired hathaway, incorporated, for $33,970,000. the fair value of all hathaway's identifiable tangible and intangible assets was $30,600,000. short will amortize any goodwill over the maximum number of years allowed. what is the annual amortization of goodwill for this acquisition?

a. $1,685,000
b. $842,500
c. $3,370,000
d. $0

Answer 1

The amount of goodwill is $3,370,000, derived from the purchase price minus the fair value of Hathaway's assets. However, according to the FASB, goodwill is not amortized but tested for impairment annually, making the annual amortization $0. Therefore, the correct option is D.

Step-by-step explanation:

The annual amortization of goodwill for Short Corporation after acquiring Hathaway, Incorporated, can be calculated by first determining the amount of goodwill, which is the excess of the purchase price over the fair value of Hathaway's identifiable tangible and intangible assets. In this case, goodwill is calculated as:

Purchase Price - Fair Value of Net Assets = Goodwill
$33,970,000 - $30,600,000 = $3,370,000

According to the Financial Accounting Standards Board (FASB), companies in the United States no longer amortize goodwill; instead, they test it for impairment at least annually. Therefore, the annual amortization of goodwill is $0.