In: Accounting
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
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