Question

New Harvest Bakery acquired all the outstanding common stock of Red Rock Bakery for $69,300 in cash. The book values and fair values of Red Rock's assets and liabilities were as follows: Book Value Fair Value Current assets $ 28,700 $ 22,300 Property, plant, and equipment 47,800 52,600 Other assets 3,500 5,800 Current liabilities 15,100 14,900 Long-term liabilities 29,000 21,400 Calculate the amount paid for goodwil

Answer 1

Amount paid for goodwill is $24,900

Step-by-step explanation:

Note: The data in the question are merged and they first sorted before answering the question as follows:

Book Value Fair Value

Current assets $ 28,700 $ 22,300

Property, plant, and equipment 47,800 52,600

Other assets 3,500 5,800

Current liabilities 15,100 14,900

Long-term liabilities 29,000 21,400

The explanation of the answer to the question are now provided as follows:

Generally, goodwill refers to an intangible asset of a company and it can be in different for such as intellectual property, brand, commercial secrets, and reputation.

Amount paid for goodwill of an acquired company can be estimated by deducting the fair value of net identifiable assets acquired from the consideration paid.

For this question, fair value of net identifiable assets can be calculated as follows:

Particular Fair Value ($)

Current assets 22,300

Property, plant, and equipment 52,600

Other assets 5,800

Current liabilities (14,900)

Long-term liabilities (21,400)

Fair value of net asset 44,400

Therefore, we have:

Amount paid for goodwill = Cash consideration paid - Fair value of net asset = $69,300 - $44,400 = $24,900