Firm A acquires Firm B when Firm B has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm A actually pays $175 million for Firm B. This purchase would result in goodwill for Firm A equal to ________.
A)$175 million
B)$155 million
C)$120 million
D)$55 million

Question

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair value of net assets acquired. The net assets of Firm B are $155 million (assets) - $35 million (liabilities) = $120 million. Therefore, goodwill is $175 million (purchase price) - $120 million (net assets) = $55 million.

Firm a Acquires Firm B When Firm B Has a Book