Question

A and B Companies have been operating separately for five years. Each company has a minimal amount of liabilities and a simple capital structure consisting solely of voting common stock. In exchange for 40 percent of its voting stock, A Company acquires 80 percent of the common stock of B Company. This is a "tax-free" stock-for-stock exchange for tax purposes. B Company’s identifiable assets have a total net fair market value of $800,000 and a total net book value of $580,000. The fair market value of the A stock used in the exchange is $700,000, and the fair value of the noncontrolling interest is $175,000.
Required:
1. The goodwill reported following the acquisition would be _____________.

Answer 1

Answer:

$75,000

Explanation:

Goodwill is an intangible asset that equals the money paid in excess of fair market value for a company's assets, which includes the company's brand recognition, proprietor technology, clients, etc.

goodwill = fair market value of A stock used in the exchange + fair market value of the noncontrolling interest - fair market value of company B's assets = $700,000 + $175,000 - $800,000 = $75,000