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Nordic Outfitters purchased all the outstanding common stock of European Retail for $3,000,000 in cash. The book values and fair values of European Retail's assets and liabilities were:

Book Value Fair Value
Receivables $250,000 $250,000
Property, plant, and equipment 2,000,000 2,400,000
Intangible assets 200,000 500,000
Liabilities (650,000) (650,000)
Net Assets $1,800,000 $2,500,000

Required:
1. Calculate the amount paid for goodwill.
2. Record Nordic Outfitters' acquisition of European Retail.

Respuesta :

The amount paid for goodwill is $500,000

The amount paid to European Retail for goodwill is $500,000.

Explanation:

Calculation of good will

Fair value of assets

Property, plant, and equipment               $2,400,000

Receivables                                               $250,000

Intangible assets                                       $500,000

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

Total asset value                                        $3,150,000

(Less) Liabilities                                            $650,000

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

                Net worth of the company        $2,500,000

Good will =  Purchase price  - Net worth of the company

                 =    $3,000,000    - $2,500,000  

Good will  =    $500,000

The amount paid for goodwill is $500,000

Acquisition notes

The Nordic Outfitters purchased all the outstanding common stock of European Retail for $3,000,000 in cash.Here we can consider only the fair values of all asset and liabilities to get the net worth of the European Retail.

The Nordic Outfitters' paid  $500,000  for goodwill at the time of acquisition

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