Question

Nordic Outfitters purchased all the outstanding common stock of European Retail for $3,000,000 in cash. The book values and fair values of European Retail's assets and liabilities were:

Book Value Fair Value
Receivables $250,000 $250,000
Property, plant, and equipment 2,000,000 2,400,000
Intangible assets 200,000 500,000
Liabilities (650,000) (650,000)
Net Assets $1,800,000 $2,500,000

Required:
1. Calculate the amount paid for goodwill.
2. Record Nordic Outfitters' acquisition of European Retail.

Answer 1

The amount paid for goodwill is $500,000

The amount paid to European Retail for goodwill is $500,000.

Step-by-step explanation:

Calculation of good will

Fair value of assets

Property, plant, and equipment $2,400,000

Receivables $250,000

Intangible assets $500,000

--------------------

Total asset value $3,150,000

(Less) Liabilities $650,000

--------------------

Net worth of the company $2,500,000

Good will = Purchase price - Net worth of the company

= $3,000,000 - $2,500,000

Good will = $500,000

The amount paid for goodwill is $500,000

Acquisition notes

The Nordic Outfitters purchased all the outstanding common stock of European Retail for $3,000,000 in cash.Here we can consider only the fair values of all asset and liabilities to get the net worth of the European Retail.

The Nordic Outfitters' paid $500,000 for goodwill at the time of acquisition