On July 1, year 5, Harrison, Inc., had the following summarized balance sheet wi

Question

On July 1, year 5, Harrison, Inc., had the following summarized balance sheet with the book values and fair values shown: On that date, New Market, Inc. acquired 100% of Harrison's voting stock from its shareholders by paying the following consideration: Prior to the combination, New Market had 1,000,000 shares of voting stock outstanding trading in an active market at $15 per share. New Market paid $25,000 for legal and accounting fees to carry out the combination. Which one of the following is the amount of goodwill or bargain purchase gain that New Market should recognize as a result of its acquisition of Harrison? Goodwill Bargain Purchase Gain $10,000 $- 0 - $15,000 $- 0 - $ - 0 - $10,000 $ - 0 - $60,000

Explanation / Answer

Its A. Goodwill of 10000.

Net purchase consideration should be = 480000 - 120000 = 360000

Net cash paid by New Market = 225000 + 100000 + 25000 legal fees = 350000

so Goodwill = 360000 - 350000 = 10000.

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