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On June 30, 2014, Diode Inc. purchased for cash at $50 per share all 150,000 shares of outstanding common stock of Moore Company. Moore's balance sheet at June 30, 2014, showed net assets with a book value of $6,000,000. The fair value of Moore's property, plant, and equipment on June 30, 2014, was $800,000 in excess of its book value. What amount, if any, will be recorded by Diode as goodwill on the date of purchase?

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Answer:

Goodwill = $700,000

Explanation:

The goodwill amounts to the excess of the "purchase consideration" (the money paid to purchase the asset or business) over the net value of the assets minus liabilities.

Purchase consideration = $50 X 150,000 = $7,500,000

Fair value of net assets = $6,000,000 (book value) + $800,000(fair value adjustment) = $6,800,000

Goodwill = $7,500,000 - $6,800,000 = $700,00

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