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9 May, 02:43

Rand Corporation acquires Southern Company's assets and liabilities for $20,000,000 in cash. At the date of acquisition, Southern's balance sheet reported assets of $75,000,000 and liabilities of $65,000,000. Investigation reveals that Southern's reported plant assets are overvalued by $1,400,000. Rand reports how much goodwill on this acquisition?

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  1. 9 May, 06:24
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    Answer: $8,600,000

    Explanation:

    Acquire Southern Company's assets and liabilities in cash = $20,000,000

    Southern's balance sheet reported,

    Assets = $75,000,000

    Liabilities = $65,000,000

    plant assets are overvalued by $1,400,000

    Actual Value of Southern's Assets = Total Fair Value - Overvaluation

    = $75,000,000 - $1,400,000

    = $73,600,000

    Goodwill = Actual Value of Southern's Assets - Value of Liabilities

    = $73,600,000 - $65,000,000

    = $8,600,000
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