Use the following information for questions
Jessup Corp.will acquire a controlling stake in the outstanding shares of Parasol Inc.for
$9.2 million in cash.
-Assuming the fair value of Parasol's net-assets is $12.5 million, and Jessup acquired a 75% share, goodwill can be calculated as
A)$175,000
B)$175,000 negative
C)$375,000
D)nil

Question

Use the following information for questions 
Jessup Corp.will acquire a controlling stake in the outstanding shares of Parasol Inc.for
$9.2 million in cash.
-Assuming the fair value of Parasol's net-assets is $12.5 million, and Jessup acquired a 75% share, goodwill can be calculated as
A)$175,000
B)$175,000 negative
C)$375,000
D)nil

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair value of the net assets acquired. Jessup paid $9.2 million for 75% of Parasol, which implies a total valuation of $12.267 million for 100% of Parasol ($9.2 million / 0.75). The fair value of the net assets is $12.5 million, so the goodwill is $12.267 million - $12.5 million = -$233,000. Since the closest option is $175,000 negative, this is the correct choice.

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