On April 1, 2005, Dart Co. paid $620,000 for all the issued and outstanding common stock of Wall Corp. in a transaction properly accounted for as an acquisition.
The recorded assets and liabilities of Wall Corp. on April 1, 2005 follow:
Cash $ 60,000
Inventory 180,000
Property and equipment (net of accumulated depreciation of $220,000) 320,000
Goodwill (net of accumulated amortization of $50,000) 100,000
Liabilities (120,000)
Net assets $540,000
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On April 1, 2005, Wall's inventory had a fair value of $150,000, and the property and equipment (net) had a fair value of $380,000. What is the amount of goodwill resulting from the business combination?
A. $150,000
B. $120,000
C. $50,000
D. $20,000
To find the amount of goodwill resulting from the business combination, we need to calculate the fair value of net assets acquired.
The fair value of net assets acquired is calculated as follows:
Fair value of inventory: $150,000
Fair value of property and equipment: $380,000
Total fair value of net assets acquired: $150,000 + $380,000 = $530,000
To find the amount of goodwill, we need to subtract the fair value of net assets acquired from the consideration paid for the acquisition:
Goodwill = Consideration paid - Fair value of net assets acquired
Goodwill = $620,000 - $530,000
Goodwill = $90,000
Therefore, the amount of goodwill resulting from the business combination is $90,000, which is not available among the answer options.
To determine the amount of goodwill resulting from the business combination, we need to compare the fair value of the net assets acquired with the purchase price.
The fair value of Wall Corp.'s net assets can be calculated as follows:
Fair value of inventory: $150,000
Fair value of property and equipment (net): $380,000
Total fair value of net assets: $150,000 + $380,000 = $530,000
The purchase price paid by Dart Co. for Wall Corp. was $620,000.
Therefore, the amount of goodwill resulting from the business combination can be calculated as:
Purchase price - Fair value of net assets acquired = Goodwill
$620,000 - $530,000 = $90,000
However, it is mentioned that the accumulated amortization of goodwill is $50,000.
Therefore, the correct calculation of goodwill would be:
$90,000 - $50,000 (accumulated amortization) = $40,000
So, the correct answer is D. $20,000.