Question

If Firm A acquires Firm Z when firm Z has a book value of assets of $150 million and a book value of liabilities of $30 million. However, if Firm A actually pays $170 million for Firm Z what is the resulting goodwill___________.

Answer 1

The answer is $50million

Step-by-step explanation:

In Accounting goodwill is calculated by subtracting net asset of the acquired business from the purchase price.

Firm A is the acquiring firm and firm Z is the acquired firm.

Net Asset of firm Z(the acquired firm) is Total assets minus total liabilities. So we have:

$150million - $30,000

=$120milion

And goodwill is purchase price minus Net asset of the acquired firm(firm Z)

Goodwill= $170million-$120millon

Goodwill = $50million