A company acquires the assets and liabilities of another company.
A company acquires the assets and liabilities of another company. The fair value of the acquired company's identifiable net assets is $8,000,000 The acquisition transaction includes the following:
$7,000,000 in cash paid to the former owners of the acquired company
125,000 new shares of stock with a market value $55/share. Registration fees, paid in cash, were $1,000,000 .
$3,000,000 in cash paid to the underwriter for consulting services
Earnings contingency with an expected present value of $2.000,000 at the date of acquisition
Goodwill for this acquistion is:
a $7.875,000
b $15,875.000
c $6.875.000
d $9.750.000
Homework Answers
Registration fees for issuance of stock as well as underwriting consulting fees are expensed out.
Goodwill for the acquisition = Purchase price - Net assets acquired = 7000000 + 125000 * 55 + 2000000 - 8000000 = 7875000. Answer is a.
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