Question

On January 1, 2019, Everlasting, Inc. purchased Comet Corporation for $650,000. On that date the net assets of Comet had a book value of $320,000, and book values were equal to fair values with the following exceptions: FIFO Inventory --Undervalued, $30,000 Land--Undervalued, $10,000 Equipment (5 year life)-- Undervalued, $75,000 Patent (5-year life)--Undervalued, $25,000 During 2019, Everlasting had income from its own operations of $220,000 and Come ad net income of $80,000 What amount of goodwill appeared on the consolidated balance sheet at December 31, 2019? Select one: O A. $140,000 o B. $330,000 O C. $190,000 D. $-0-

Answer 1

Amounts are in $

Option C - $190,000 is the answer

Net assets of Cometh corporation on date of acquisition = 320,000

Add : Total Undervaluation of all assets = 140,000

(30,000 + 10,000 + 25,000 + 75,000)

Net assets at fair value = 320,000 + 140,000 = 460,000

This is the actual worth of business on acquisition date

But the purchase Consideration given is 650,000

Good will = Purchase consideration - Net worth

= 650,000 - 460,000

= 190,000

So Option C is answer

Note : Post acquisition Profits are not considered while calculating Goodwill. Only the net worth of business at acquisition date is considered.