Rockport Refinery acquired all the outstanding common stock of Stellman Corporation for $68,000 in cash. The book values and fair values of Stellman's assets and liabilities were as follows:
Book Value Fair Value
Current assets $ 24,000 $ 30,000
Property, plant, and equipment 44,000 56,000
Other assets 4,000 6,000
Current liabilities 16,000 16,000
Long-term liabilities 24,000 22,000
Required:
Calculate the amount Rockport would record for goodwill.
To calculate the amount of goodwill, we need to determine the difference between the fair value of Stellman Corporation's net assets and the amount paid by Rockport Refinery for the acquisition.
Fair value of Stellman's assets:
Current assets: $30,000
Property, plant, and equipment: $56,000
Other assets: $6,000
Total fair value of assets: $30,000 + $56,000 + $6,000 = $92,000
Fair value of Stellman's liabilities:
Current liabilities: $16,000
Long-term liabilities: $22,000
Total fair value of liabilities: $16,000 + $22,000 = $38,000
Net assets (assets - liabilities): $92,000 - $38,000 = $54,000
Amount paid for the acquisition: $68,000
Goodwill: Acquisition price - Net assets
Goodwill = $68,000 - $54,000 = $14,000
Therefore, Rockport would record $14,000 for goodwill.