The Turboprop Boat Company purchased Wooden Oar Company for $60 million in cash.

Question

The Turboprop Boat Company purchased Wooden Oar Company for $60 million in cash. The book value of the net assets of Wooden Oar Company were $40 million at the time of the purchase. The fair market value of the net assets of Wooden Oar Company were estimated to be $50 million at the time of the purchase. As a result, Turboprop Boat Company should record

a. goodwill of $10 million
b. goodwill of $20 million
c. no goodwill because it paid cash for Wooden Oar Company rather than issuing stock
d. no goodwill because the fair market value of Wooden Oar's net assets was equal to the cash paid

Explanation / Answer

The Turboprop Boat Company purchased Wooden Oar Company for $60 million in cash. The book value of the net assets of Wooden Oar Company were $40 million at the time of the purchase. The fair market value of the net assets of Wooden Oar Company were estimated to be $50 million at the time of the purchase. As a result, Turboprop Boat Company should record

a. goodwill of $10 million
b. goodwill of $20 million
c. no goodwill because it paid cash for Wooden Oar Company rather than issuing stock
d. no goodwill because the fair market value of Wooden Oar's net assets was equal to the cash paid

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