Question

Koko Co. purchased a 30% interest in Lange Enterprises on December 31, 2014 for $200,000. On that date, Lange's net assets had a book value of $500,000 and fair value of $600,000. What amount of goodwill resulted from this acquisition?a. $0b. $40,000c. $60,000d. $100,000

Answer 1

$20,000

Step-by-step explanation:

On the date of acquisition, Lange's net assets had a book value of $500,000 and fair value of $600,000.

The amount of goodwill that resulted from this acquisition is calculated by the excess of price over the fair value of net identifiable assets which in this case is $600,000.

Proportionately, 30% of the fair value of net identifiable assets is $180,000

However the consideration paid is $200,000.

Hence Goodwill from the acquisition which is the excess of price over the fair value is $20,000.