**Question 27 of 34**Consider the following Purchase Price Allocation schedule for this same M&A deal:**Purchase Price Allocation:****Goodwill Calculation:**- **Equity Purchase Price:** $2,000.0- (-) **Seller Book Value:** (500.0)- (+) **Write-Off of Existing Goodwill:** 100.0**Total Allocable Purchase Premium:**- (-) **Write-Up of PP&E:**- (-) **Write-Up of Intangibles:**- (-) **Write-Down of Deferred Tax Liabilities:** (40.0)- (+) **New Deferred Tax Liability:****Total Goodwill Created:****Fixed Asset Write-Up:**- **PP&E Write-Up %:** 10.0%- **PP&E Write-Up Amount:** $20.0- **Depreciation Period (Years):** 8**Intangible Asset Write-Up:**- **Purchase Price to Allocate:** - **% Allocated to Indefinite-Lived Intangibles:** 30.0% - **Indefinite-Lived Intangibles:** - **% Allocated to Definite-Lived Intangibles:** 5.0% - **Intangibles Write-Up Amount:** - **Amortization Period (Years):** 5**New Deferred Tax Liability:**Based on this schedule, please calculate the Goodwill created in this deal. Assume a 25% tax rate.**Options:**- A) $1,020.- B) $1,005.- C) $980.- D) $1,125.

When a company displays its potential to earn bigger profits than its actual assets alone would imply, it creates goodwill. For instance, if a firm has a strong brand that attracts consumers, a devoted customer base, and a favorable market reputation, it may be able to charge higher rates for its products or services. This capacity to create surplus income aids in the development of goodwill.The schedule for allocating purchase prices transaction, framed as an Asset Purchase instead:Calculation of the total allocable purchase premium:Calculation of the total Goodwill created:ParticularsAmountTotal allocable purchase premium$1,600Less: Write-up of PP&E($20)Less: Write-up of Intangibles($560)Less: Write-down of deferred tax liabilities($40)Add: New Deferred tax liability $0Total Goodwill Created$980Hence, the total goodwill created is $980Based on the schedule above, the goodwill created in this deal is $980Hence, the correct choice is option (C): $980

Answered: Based on this schedule above, please…

Business

Accounting

Based on this schedule above, please calculate the Goodwill created in this deal. Assume a 25% tax rate. A B C D $1,020. $1,005. $980. $1,125.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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