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14 July, 12:15

At the beginning of fiscal 2017, Wooster Company acquired a small savings and loan association for $102 million. The book value of the assets of the acquired company were $261 million, its liabilities $172.5 million. An appraiser determined that the acquiree's land had a fair value of $3 million in excess of its net book value. Wooster also determined that the acquiree had an unrecorded liability of $6.75 million relating to a lawsuit. The book value of all other assets and liabilities approximated fair value. What did Wooster Company record as goodwill for this acquisition?

A. $11.50 million

B. $ 9.75 million

C. $17.25 million

D. $-0-

E. None of the above

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  1. 14 July, 12:40
    0
    C. $17.25 million

    Explanation:

    In case of an acquisition, the assets are valued at their fair value and we will also include all unrecorded liabilities. Goodwill will be the excess payment over the net assets of the company. Excess fair value of land means that assets would increase by that amount to arrive at their fair value. Also, We have to include unrecorded liabilities in the total liabilities

    Net Assets = Fair value of assets - Total liabilities

    Or, Net Assets = (Book value of assets + Excess Fair value of land) - (Book value of liabilities + unrecorded liabilities)

    Or, Net Assets = ($261 million + $3 million) - ($172.50 million + $6.75 million) = $84.75 million

    Amount paid to acquire = $102 million

    Goodwill = $102 million - $84.75 million = $17.25 million
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