Using the same acquisition date balance sheets as above. Assume instead that Pinehollow acquired 80% of the outstanding stock of Stonebriar by issuing 80,000 shares of its $1 par value stock. The shares have a fair value of $15 per share. Pinehollow also paid $25,000 in direct acquisition costs. What is the amount of goodwill that will be included in the consolidated balance sheet immediately following the acquisition

1 Answer

  • Answer:

    See explanation


    There is missing information on this question. I tried to look for it online but I could not find it. However I have provided explanation to solve the problem detailed below :

    Goodwill is the excess of the Purchase Consideration / Price over the Net Assets taken over at the acquisition date.

    So the first step is to determine the acquisition date fair value of Assets and Liabilities acquired. Do not use Book Values. If given book values, adjust them to fair value.

    Net Assets = Assets at Fair Value - Liabilities at Fair Value

    The next step is to calculate the Goodwill Amount to be included in Consolidated Statement. Purchased Goodwill is included in Financial Statements.

    Goodwill = Purchase Price - Net Assets Acquired

    Purchase Price :

    Issue of Shares (80,000 x $15)       $1,200,000

    Acquisition Costs                                  $25,000

    Purchase Price                                 $1,225,000


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