Problem:
The balance sheet of RA Corporation at December 31, 2005 is presented below. On December 31, 2005, AEV Corporation purchased RA Corporation for $850,000 in cash. How much goodwill would AEV Corporation record with respect to the purchase of RA Corporation? Assume the fair market value of all assets and liabilities at 12/31/2005 is equal to the book value of the assets and liabilities as reported in the balance sheet.
RA Corporation
Balance Sheet
December 31, 2005
Cash 150,000
Accounts Receivable 350,000
Property, Plant, and Equipment 200,000
Accumulated Depreciation (135,000)
Other Assets 250,000
Total Assets 815,000
Accounts Payable 175,000
Accrued Compensation 55,000
Total Liabilities 230,000
Common Stock 50,000
Additional Paid in Capital 350,000
Retained Earnings 185,000
Total Shareholder's Equity 585,000
Total Liabilities and Equity 815,000