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13 June, 04:09

Juliana Corporation purchased all of the outstanding stock of Caldwell Inc., paying $4,500,000 cash. Juliana assumed all of the liabilities of Caldwell. Book values and fair values of acquired assets and liabilities were:

Book Value Fair Value

Current assets (net) $230,000 $540,000

Property, plant, & equip. (net) 1,650,000 2,080,000

Liabilities 490,000 660,000

Juliana would record goodwill of:

$ 2,540,000.

$ 3,120,000.

$ 170,000.

$ 7,800,000.

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Answers (1)
  1. 13 June, 07:22
    0
    The answer is $2,540,000

    Explanation:

    Using Fair Value (FV) method:

    Fair Value of Total Assets = FV of Property, Plant & Equipment + FV of Current Assets.

    FV of Total Assets = $2,080,000+$540,000 = $2,620,000

    FV of Liability (As given) = $660,000

    FV of Net Assets = FV of Total Assets - FV of liabilities

    = $2,620,000-$660,000 = $1,960,000

    Goodwill = Consideration paid - FV of Net Assets of the acquired company.

    = $4,500,000-$1,960,000

    = $2,540,000.

    Goodwill represents the extra amount paid on the acquired company in excess of its net assets. This could be because the acquired has a stronger brand, better customer base or any other values that the acquirer considered as valuable for their business.
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