CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

On June 30th, 2009, Plum Corporation acquired the stock of Strawberry Company. Plum purchased for cash all 200,000 shares of Strawberry's common stock for $18 per share. On this date, the carrying value of Strawberry's net assets on their balance sheet was $2,500,000 and the fair market value of their plant assets exceeded its carrying value by $500,000. What amount of goodwill should Plum report on its 6/30/2009 balance sheet related to this transaction?

A. $0.
B. $500,000.
C. $600,000.
Correct Answer: C

Goodwill is the excess of the investment cost over the fair market value of the identifiable assets. The amount would be determined as follows:

Investment cost (200,000 shares @18) = 3,600,000.
FMV of identifiable assets 3,000,000*
Goodwill to be reported 600,000.

* 2,500,000 carrying amount + 500,000 FMV excess on plant assets.

User Contributed Comments 2

User Comment
johnowens this is very simple.
Purchase Cost = (18)(200,000) = $3.6m Fair Value of Company's Assets = 2.5m + 500k = $3m
Therefore Goodwill = $600k
yxten1 1. Find out Acquisition price (180,000 * $18)
2. Acquisition Price (-) Book Value of acquiress (3,600,000 - 2,500,000)
3. Adjust acquiree book value to fair value (500,000)
4. Goodwill = 3,600,000 - 2,500,000 - 500,000 = 600,000
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