Johnson corporation purchased all of the outstanding common stock of smith corporation for $11,000,000 in cash. the book value of smith’s net assets (assets minus liabilities) was $7,800,000. the fair values of all of smith’s assets and liabilities were equal to their book values with the following exceptions:
book value fair value
receivables $1,300,000 $ 1,100,000
property, plant, and equipment 8,000,000 9,400,000
intangible assets 200,000 1,200,000
required:
calculate the amount paid for goodwill

$5,400,000

Explanation:

Amount paid for goodwill:

= Purchase Consideration - Fair value of net assets + Fair value in excess of book value - Book value in excess of fair value

= $11,000,000 - (Book value of net assets) + (Property, plant, & equipment + Intangible assets) - (Receivables)

= $11,000,000 - $7,800,000 + ($1,400,000 + $1,000,000) - $200,000

= $11,000,000 - $7,800,000 + $2,400,000 - $200,000

= $5,400,000

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