On March 31, 2009, Wolfson Corporation acquired all of the outstanding common stock of barney Corporation for $17,000,000 in cash. The book values and fair values of barney's assets and liabilities were as follows:
Book value Fair value
current assets $6,000,000 7,500,000
Property,plant,and
equipment 11,000,000 14,000,000
other assets 1,000,000 1,500,000
Current liabilities4,000,000 4,000,000
long-term
liabilities 6,000,000 5,500,000
Calculate the amount paid for goodwill.
To calculate the amount paid for goodwill, you need to find the excess of the purchase price over the fair value of identifiable net assets.
First, calculate the fair value of identifiable net assets:
- Add up the fair values of current assets, property, plant, and equipment, and other assets:
7,500,000 + 14,000,000 + 1,500,000 = $23,000,000
- Add up the fair values of current liabilities and long-term liabilities:
4,000,000 + 5,500,000 = $9,500,000
- Calculate the net assets by subtracting the total liabilities from the total assets:
23,000,000 - 9,500,000 = $13,500,000
Next, subtract the net assets from the purchase price to find the amount paid for goodwill:
17,000,000 - 13,500,000 = $3,500,000
The amount paid for goodwill in this acquisition is $3,500,000.