Respuesta :
James company acquires smith corporation for $10 million. The book value of smith corporation's net assets is $7 million, while the fair value of the net assets is $9 million. Goodwill associated with the acquisition is $1 Million. This is because the total net assets is reduced by existing assets.
Explanation:
Goodwill can be described as a transparent asset that are admitted when the ownership of a company is transferred as a going concern.
To determine the implicit in this acquisition, we can use this formula:
Differential implicit = Amount paid - book value
Differential implicit = $10 - $7
Differential implicit = $3
Thus, the differential implicit is $3
To determine how much value that should be allocated to goodwill in the consolidated balance sheet prepared immediately after the combination, we can use this formula:
Goodwill = Purchase Price - Net assets fair value
Goodwill = $10 - $9
Goodwill = $1
So, the amount that should be allocated to goodwill in the consolidated balance sheet prepared immediately after the combination is $1.
You can learn more about goodwill here, brainly.com/question/22428604
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