Question

Mercury Corporation acquired 100 percent of the stock of Jupiter Company when the book value of Jupiter's net assets was $250,000. The fair value of Jupiter's net assets was $280,000 on the acquisition date.

Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Mercury paid $275,000 for the acquisition?
A) ($5,000)
B) $0
C) $5,000
D) $25,000

Answer 1

There will be $0 amount of goodwill reported in the consolidated financial statements.

In a business combination, goodwill represents the excess of the purchase price over the fair value of the net assets acquired. In this case, the purchase price was $275,000 and the fair value of Jupiter's net assets was $280,000. Since the purchase price is less than the fair value of net assets, there is no goodwill reported in the consolidated financial statements.