Question

Rand Corporation acquires Southern Company's assets and liabilities for $20,000,000 in cash. At the date of acquisition, Southern's balance sheet reported assets of $75,000,000 and liabilities of $65,000,000. Investigation reveals that Southern's reported plant assets are overvalued by $1,400,000. Rand reports how much goodwill on this acquisition?

Answer 1

Answer: $8,600,000

Step-by-step explanation:

Acquire Southern Company's assets and liabilities in cash = $20,000,000

Southern's balance sheet reported,

Assets = $75,000,000

Liabilities = $65,000,000

plant assets are overvalued by $1,400,000

Actual Value of Southern's Assets = Total Fair Value - Overvaluation

= $75,000,000 - $1,400,000

= $73,600,000

Goodwill = Actual Value of Southern's Assets - Value of Liabilities

= $73,600,000 - $65,000,000

= $8,600,000