Question

ABC Company purchases DEF Company for $4,200,000 cash on January 1, 2021. The book value of DEF Company's net assets reported on its December 31, 2020 financial statement was $3,600,000. An analysis indicated that the fair value of DEF's tangible assets exceeded the book value by $600,000, and the fair value of identifiable intangible assets exceeded book value by $320,000. What amount of gain or goodwill is recognized by ABC

Answer 1

$320,000

Step-by-step explanation:

Calculation for What amount of gain or goodwill is recognized by ABC

Using this formula

Gain/Goodwill =[Tangible assets -( Cash - Net assets)+Fair value ]

Let plug in the formula

Gain/Goodwill =[$600,000-( $4,200,000- $3,600,000)+$320,000]

Gain/Goodwill=$600,000-$600,000+$320,000

Gain/Goodwill=$320,000

Therefore the amount of gain or goodwill is recognized by ABC will be $320,000