Question

On July 31, 2020, Wildhorse Company paid $2,850,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Wildhorse. Conchita reported the following balance sheet at the time of the acquisition.

Current assets $750,000
Current liabilities $600,000
Noncurrent assets 2,550,000
Long-term liabilities 500,000
Total assets $3,300,000
Stockholders’ equity 2,200,000
Total liabilities and stockholders’ equity $3,300,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,640,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information.
Current assets $480,000
Noncurrent assets (including goodwill recognized in purchase)
2,540,000
Current liabilities (700,000)
Long-term liabilities(500,000)
Net assets $1,820,000
Finally, it is determined that the fair value of the Conchita Division is $1,850,000.
Compute the amount of goodwill recognized, if any, on July 31, 2020.

Answer 1

Goodwill Paid by Wildhorse = $ 210,000

Step-by-step explanation:

On July 31st the amount of Goodwill recognized by Wildhorse of Conchita is

Payment by Wildhorse to acquire Conchita = $ 2850,000

Less Net identifiable assets of Conchita = $ 2640,000

Goodwill Paid by Wildhorse = $ 210,000

The following entry would have been passed on 31st July

Goodwill Dr. $ 210,000

Assets Dr. $ 2640,000

Investments $ 2850,000 Cr

The goodwill is determined by the difference in fair value paid and the fair value of assets.