Question

Desert Company reports on its December 31, 2018, Balance Sheet a value of assets of $12,000,000 and liabilities of $5,000,000. All of Desert's assets’ book values approximate their fair value, except for land, which has a fair value that is $800,000 greater than its book value. December 31, 2018, Desert Company was acquired by Beach Company at a purchase price of $12,800,000. What amount of goodwill should Beach record as a result of this purchase?

Answer 1

Answer:

$5,000,000

Explanation:

Net assets acquired:

= Assets value + Difference between Land's fair and book value - Liabilities

= $12,000,000 + $800,000 - $5,000,000

= $7,800,000

Goodwill payment:

= Acquiring price paid by Beach company - Net assets acquired

= $12,800,000 - $7,800,000

= $5,000,000

Therefore, the amount of goodwill should Beach record as a result of this purchase is $5,000,000.