Question

Mainline Produce Corporation acquired all the outstanding common stock of Iceberg Lettuce Corporation for $35,000,000 in cash. The book values and fair values of Iceberg’s assets and liabilities were as follows: Book Value Fair Value Current assets $ 10,000,000 $ 13,000,000 Property, plant, and equipment 20,400,000 26,400,000 Other assets 1,600,000 2,600,000 Current liabilities 6,000,000 6,000,000 Long-term liabilities 10,000,000 9,000,000 Required: Calculate the amount paid for goodwill. (Enter your answer in millions (i.e. 5,000,000 should be entered as 5).)

Answer 1

Answer:

$8,000,000

Explanation:

The computation of the amount paid for goodwill is shown below:

= Cash Consideration paid - Fair value of net assets received

where,

Cash consideration is $35,000,000

And, the fair value of net assets is

= Fair value of property plant and equipment + fair value of other assets + fair value of current assets - fair value of current liabilities - fair value of long term liabilities

= $26,400,000 + $2,600,000 + $13,000,000 - $6,000,000 - $9,000,000

= $27,000,000

So, the amount paid to goodwill is

= $35,000,000 - $27,000,000

= $8,000,000

We simply applied the above formula

The net asset is

= Total assets - total liabilities

And, the same is applied above