Question

Firm A acquires firm B when firm B has a book value of assets of $175 million and a book value of liabilities of $45 million. Firm A actually pays $195 million for firm B. This purchase would result in goodwill for firm A equal to _____.

Answer 1

goodwill = $65

Step-by-step explanation:

given data

book value of assets = $175 million

book value of liabilities = $45 million

actually pays = $195 million

to find out

purchase would result in goodwill

solution

we get here first Value of firm B that is

Value of firm B = Value of Assets - Value of Liabilities .................1

Value of firm B = $175 - $45

Value of firm B = $130

and

goodwill = purchase cost - value of firm's assets .....................2

goodwill = $195 - $130

goodwill = $65