Cheers Co. Tapp Ltd. Current assets $ 240 , 000 $ 40 , 000 Net capital assets 400 , 000 ‾ 240 , 000 ‾ $ 640 , 000 ‾ $ 280 , 000 ‾ Current liabilities $ 168 , 000 $ 140 , 000 Long-term debt 80 , 000 48 , 000 Share capital 360 , 000 50 , 000 Retained earnings 32 , 000 ‾ 42 , 000 ‾ $ 640 , 000 ‾ $ 280 , 000 ‾ \begin{array} { | l | r | r | } \hline & ext { Cheers Co. } & ext { Tapp Ltd. } \\hline ext { Current assets } & \$ 240,000 & \$ 40,000 \\hline ext { Net capital assets } & \underline { 400,000 } & \underline { 240,000 } \\hline & \$ \underline { 640,000 } & \$ \underline { 280,000 } \\hline ext { Current liabilities } & \$ 168,000 & \$ 140,000 \\hline ext { Long-term debt } & 80,000 & 48,000 \\hline ext { Share capital } & 360,000 & 50,000 \\hline ext { Retained earnings } & \underline { 32,000 } & \underline { 42,000 } \\hline & \$ \underline { 640,000 } & \$ \underline { 280,000 } \\hline\end{array} Current assets Net capital assets Current liabilities Long-term debt Share capital Retained earnings Cheers Co. $240 , 000 400 , 000 $ 640 , 000 $168 , 000 80 , 000 360 , 000 32 , 000 $ 640 , 000 Tapp Ltd. $40 , 000 240 , 000 $ 280 , 000 $140 , 000 48 , 000 50 , 000 42 , 000 $ 280 , 000 Cheers acquired 100% of Tapp's shares for $150,000. On the acquisition date, the fair value of the current assets and the net capital assets of Tapp Ltd. were $104,000 and $216,000, respectively. The fair value of the liabilities equalled their book value. What is the amount of goodwill created in this acquisition?A) $(24,000)B) $ 0C) $18,000D) $40,000

Question

Cheers Co.   Tapp Ltd.   Current assets  $ 240 , 000 $ 40 , 000  Net capital assets  400 , 000 ‾ 240 , 000 ‾ $ 640 , 000 ‾ $ 280 , 000 ‾  Current liabilities  $ 168 , 000 $ 140 , 000  Long-term debt  80 , 000 48 , 000  Share capital  360 , 000 50 , 000  Retained earnings  32 , 000 ‾ 42 , 000 ‾ $ 640 , 000 ‾ $ 280 , 000 ‾ \begin{array} { | l | r | r | } \hline  &  	ext { Cheers Co. }  &  	ext { Tapp Ltd. } \\hline 	ext { Current assets }  &  \$ 240,000  &  \$ 40,000 \\hline 	ext { Net capital assets }  &  \underline { 400,000 }  &  \underline { 240,000 } \\hline  &  \$ \underline { 640,000 }  &  \$ \underline { 280,000 } \\hline 	ext { Current liabilities }  &  \$ 168,000  &  \$ 140,000 \\hline 	ext { Long-term debt }  &  80,000  &  48,000 \\hline 	ext { Share capital }  &  360,000  &  50,000 \\hline 	ext { Retained earnings }  &  \underline { 32,000 }  &  \underline { 42,000 } \\hline  &  \$ \underline { 640,000 }  &  \$ \underline { 280,000 } \\hline\end{array}  Current assets   Net capital assets   Current liabilities   Long-term debt   Share capital   Retained earnings  ​  Cheers Co.  $240 , 000 400 , 000 ​ $ 640 , 000 ​ $168 , 000 80 , 000 360 , 000 32 , 000 ​ $ 640 , 000 ​ ​  Tapp Ltd.  $40 , 000 240 , 000 ​ $ 280 , 000 ​ $140 , 000 48 , 000 50 , 000 42 , 000 ​ $ 280 , 000 ​ ​ ​   Cheers acquired 100% of Tapp's shares for $150,000. On the acquisition date, the fair value of the current assets and the net capital assets of Tapp Ltd. were $104,000 and $216,000, respectively. The fair value of the liabilities equalled their book value. What is the amount of goodwill created in this acquisition?A) $(24,000)B) $ 0C) $18,000D) $40,000

Cache Bruce · Accepted Answer

Final Answer : C, Explanation :  Goodwill is calculated as the excess of the purchase consideration over the fair value of the net assets acquired. The fair value of Tapp's net assets is calculated as the fair value of its assets minus the book value of its liabilities, which is $(104,000 + 216,000) - (140,000 + 48,000) = $132,000. Cheers acquired Tapp for $150,000, so the goodwill created is $150,000 - $132,000 = $18,000.

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