ExpertMedium1 markMultiple Choice
CPA · Question 06 · Area II: Technical Accounting
Alpha Corp. acquires 100% of Beta Inc. for $1,200,000 in cash. At the acquisition date, Beta's net identifiable assets have a book value of $800,000 and a fair value of $1,050,000. Beta has an unrecorded patent with a fair value of $50,000. What amount of Goodwill should Alpha record?
Alpha Corp. acquires 100% of Beta Inc. for $1,200,000 in cash. At the acquisition date, Beta's net identifiable assets have a book value of $800,000 and a fair value of $1,050,000. Beta has an unrecorded patent with a fair value of $50,000. What amount of Goodwill should Alpha record?
Answer options:
A.
$400,000
B.
$150,000
C.
$100,000
D.
$200,000
How to approach this question
Formula: Goodwill = Consideration Transferred - Fair Value of Identifiable Net Assets. Ensure all identifiable assets (including previously unrecorded ones like patents) are included in the Net Assets FV.
Full Answer
C.$100,000✓ Correct
ASC 805 requires measuring identifiable assets at fair value. The patent is an identifiable intangible asset. Total FV of Net Assets = $1,050,000 (given FV of recorded assets) + $50,000 (patent) = $1,100,000. Goodwill = $1,200,000 - $1,100,000 = $100,000.
Common mistakes
Forgetting to add unrecorded intangibles to the net asset fair value; using book value instead of fair value.
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