Mainline Produce Corporation acquired all the outstanding common stock of Iceberg Lettuce Corporation for $38,000,000 in cash. The book values and fair values of Iceberg’s assets and liabilities were as follows:
Book Value Fair Value
Current assets $ 11,800,000 $ 14,800,000
Property, plant, and equipment 24,000,000 30,000,000
Other assets 2,200,000 3,200,000
Current liabilities 6,600,000 6,600,000
Long-term liabilities 11,400,000 10,400,000
Required:
1. Calculate the amount paid for goodwill.

Question

18-03-2020
Business

contestada

Mainline Produce Corporation acquired all the outstanding common stock of Iceberg Lettuce Corporation for $38,000,000 in cash. The book values and fair values of Iceberg’s assets and liabilities were as follows:
Book Value Fair Value
Current assets $ 11,800,000 $ 14,800,000
Property, plant, and equipment 24,000,000 30,000,000
Other assets 2,200,000 3,200,000
Current liabilities 6,600,000 6,600,000
Long-term liabilities 11,400,000 10,400,000
Required:
1. Calculate the amount paid for goodwill.

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Adedokuntunde6 Adedokuntunde6 · Answer 1 · 2020-03-22T05:28:01+01:00

Answer: The Goodwill is $7,000,000

Explanation:

$

Purchase price. 38,000,000

Less:

Fair value of asset 48,000,000

Less: Fair value of liabilities 17,000,000

-----------------------

Fair value of net Asset. 31,000,000

---------------------

Goodwill. 7,000,000

-------------------------

Workings

Fair value of Asset = Current Asset + Property, plant and equipment + Other asset

= 14,800,000 + 30,000,000 + 3,200,000

= 48,000,000

Fair value of Liabilities = Current Liability + Long term Liability

= 6,600,000 + 10,400,000

= 17,000,000

danishmujtabaqureshi danishmujtabaqureshi · Answer 2 · 2020-03-22T05:33:45+01:00

Answer:

$7 million

Explanation:

Make Adjustments between the Book Values and the Fair Values

All values are in $Million(s)

Book Value Fair Value Adjusted

Current Assets 11.8 14.8 3

Fixed Assets 24 30 6

Other Assets 2.2 3.2 1

Current Liabilities (6.6) (6.6) (0)

LT Liabilities (11.4) (10.4) 1

Equity 20 31 11

Now, we would calculate the excess purchase price which is the difference between the $38 million paid by Mainline Produce Corporation in order to acquire Iceberg Lettuce Corporation and the net book value of the assets

Excess purchase price = 38 - 20 = $18 million

Goodwill = Excess purchase price - Fair value adjustments

= $18 million - $11 million

= $7 million

The goodwill paid is $7 million