Final answer:
The amount of goodwill recorded in connection with this combination is $60,000.
Step-by-step explanation:
Gross Amount of Goodwill
Goodwill is the amount that exceeds the fair value of net assets acquired in a business combination. To calculate the amount of goodwill recorded in this combination, we need to determine the fair value of net assets acquired and compare it to the purchase price.
To calculate the fair value of net assets acquired, we adjust the book values of Avergy's assets and liabilities to their fair values:
Common stock: No adjustment needed.
Retained earnings: No adjustment needed.
Equipment: $50,000 undervalued, so the fair value is $50,000 higher.
Land: $50,000 undervalued, so the fair value is $50,000 higher.
Bonds Payable: $40,000 overvalued, so the fair value is $40,000 lower.
Inventory: $60,000 undervalued, so the fair value is $60,000 higher.
By adjusting the values, we find that the fair value of net assets acquired is $660,000 ($100,000 + $420,000 + $50,000 + $50,000 - $40,000 + $60,000). The purchase price is $720,000. Therefore, the difference between the purchase price and fair value of net assets acquired, which represents goodwill, is $60,000.
Answer:
The amount of goodwill recorded in connection with this combination is $60,000.