Question

On July 1, 2016, Gissel Corporation purchased Mills Company by paying $525,000 cash. At July 1, 2016, the balance sheet of Mills Company was as follows.

Cash $50,000 Accounts Payable $200,000

Accounts Receivable $90,000 Stockholder’s Equity $225,000

Inventory $100,000

Land $40,000

Buildiings 75,000

Equipment $70,000

Total $425,000 Total $425,000

The recorded amounts all approximate current values except for land (fair value of $60,000) and inventory (fair value of $110,000). They also acquired a patent from Mills company with a fair value of $15,000. What amount of goodwill should be recognized by Gissel Corporation?

Answer 1

Answer:

Amount of goodwill should be recognized by Gissel Corporation = $255,000 -->computed below

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Working note - Calculation of gain (or) loss on acquisition
	Fair Value	Fair Value
Assets Acquired:
Cash	$50,000
Accounts receivable	$90,000
Inventory	$110,000
Land	$60,000
Buildings	$75,000
Equipment	$70,000
Patents	$15,000
Total assets		$470,000
liabilities takenover:
Accounts payable	$200,000
Total liabilities		$200,000
Net assets acquired                 (Total assets - Total liabilities)		$270,000
Total Consideration paid		$525,000

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Loss on acquisition = Total consideration paid - Net assets acquired = $525,000 - $270,000 = $255,000

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Loss on acquisition = Goodwill