In the given 50% stock and 50% cash acquisition, what is the amount of Goodwill recognized?

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Enhance your accounting skills for the PSIA Accounting Exam. Use flashcards and multiple-choice questions to prepare effectively with hints and explanations. Get set for your exam success!

Multiple Choice

In the given 50% stock and 50% cash acquisition, what is the amount of Goodwill recognized?

Explanation:
Goodwill is the excess of the total consideration paid to acquire a business over the fair value of the identifiable net assets acquired. In this case, the total consideration is 2,000 (half in cash and half in stock) to obtain the target, whose identifiable net assets are valued at 1,200. The difference is 800, so Goodwill recognized is 800. The way the payment is split between cash and stock doesn’t change the calculation—it’s the total consideration versus net assets that matters. If there were a noncontrolling interest involved, that would affect the calculation, but here you’re acquiring the entire entity.

Goodwill is the excess of the total consideration paid to acquire a business over the fair value of the identifiable net assets acquired. In this case, the total consideration is 2,000 (half in cash and half in stock) to obtain the target, whose identifiable net assets are valued at 1,200. The difference is 800, so Goodwill recognized is 800. The way the payment is split between cash and stock doesn’t change the calculation—it’s the total consideration versus net assets that matters. If there were a noncontrolling interest involved, that would affect the calculation, but here you’re acquiring the entire entity.

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