Question

Northern purchased the entire business of Southern including all its assets and liabilities for $600,000. Below is information related to the two companies Northern Fair value of assets $1,050,000 $800,000 575,000 Fair value of liabilities 300,000 Reported assets 800,000 650,000 Reported liabilities 500,000 250,000 Net Income for the year 50,000 60,000 How much goodwill did Northern pay for acquiring Southen?

A) $300,000.
B) $200,000
C) $150,000.
D) $100,000

Answer 1

D) $100,000

Step-by-step explanation:

As per the given question the solution of goodwill is provided below:-

To reach at goodwill first we need to find out the fair value of net assets which is here below:-

Fair value of Net assets = Fair value of assets - Fair value of liabilities

= $800,000 - $300,000

= $500,000

Goodwill = Price paid - Acquired Fair value of net assets

= $600,000 - $500,000

= $100,000

So, we have calculated the goodwill by deducting the acquired Fair value of net assets from price paid.