On June 30, 2019 the Ricardo Company purchased 100% of the outstanding stock of Leslie Inc....

On June 30, 2019 the Ricardo Company purchased 100% of the outstanding stock of Leslie Inc. Just prior to the acquisition there is $1,250,000 of goodwill on the books of Ricardo and $625,000 of goodwill on the books of Leslie. In determining the fair value of the acquisition, the accountants for Ricardo allocated $550,000 of the purchase price to goodwill. The consolidated goodwill after the acquisition should total...

A. 550,000

B. 1,800,000

C. 1,175,000

D. 1,875,000

E. 2,425,000

Solutions

Expert Solution

Solution:

Goodwill on Acquisition: Goodwill on acquisition is calculated on the basis of excess amount paid over net assets value. So in the given case Goodwill in the books of Leslie Inc. of $ 625,000 is useless for amalgamation.

Goodwill from purchase of Leslie is allocated by accountants of Ricardo is $ 550,000. So this means amount paid over net assets by Ricardo is $ 550,000 and this is taken for consolidated goodwill.

Calculation of Consolidated Goodwill

Ricardo’s Goodwill before Purchase of Shares of Leslie - $ 1,250,000

Add: Goodwill generated on acquisition of Leslie - $ 550,000

Total Consolidated Goodwill - $ 1,800,000

Answer = Option B = $ 1,800,000

ekkarill92 answered 1 year ago

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