Big Bertha’s Birds decided to purchase Ken’s Canaries. Ken’s Canaries has a book value of $550,000. Big Bertha paid $655,000 in stock and cash under the purchase method. How much goodwill would Big Bertha be required to put on its balance sheet?
Explanation
Answer - D - The goodwill that Big Bertha’s Birds would recognize on its balance sheet is $105,000.
Key Takeaway: Goodwill is the premium paid above book value for another business. Ken’s Canaries had a book value of $550,000 and the purchase price was $655,000. $655,000 − $550,000 = $105,000.
