Johnson Corporation acquired all of the outstanding common stock of Smith Corpor

Question

Johnson Corporation acquired all of the outstanding common stock of Smith Corporation for $11,840,000 in cash. The book value of Smith’s net assets (assets minus liabilities) was $8,500,000. The fair values of all of Smith’s assets and liabilities were equal to their book values with the following exceptions:

Required:
Calculate the amount paid for goodwill.

Book Value Fair Value Receivables $ 2,000,000 $ 1,730,000 Property, plant, and equipment 8,700,000 10,170,000 Intangible assets 270,000 1,340,000

Explanation / Answer

11,840,000 is the final fair value and 8,500,00 is the book value the difference being 3,340,000.

For the 3 things given above fair value - book value is

(1,730,000+10,170,000+1340,000) - (2,000,000+8,700,000+270,000) that comes out to be 2,270,000.

So amount for goodwill is 3,340,000-2,270,000

1,070,000.

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