The following information pertains to Company A’s acquisition of Company Z:
Company A acquires Company Z for $600 million
Company A has assets of $600 million and liabilities of $400 million
Company A has existing Goodwill of $125 million
Company Z has assets of $500 million and liabilities of $200 million
Company Z has PP&E of $100 million and intangible assets of $50 million
After an evaluation by an appraiser, it was determined that Company Z’s PP&E was worth $50 million more than it appeared on its balance sheet and that its intangible assets were worth $25 million more, attributable to a solid brand name.
Using the purchase method of accounting for business combinations, and assuming no deferred taxes, what is the Goodwill created in this transaction?
$225 million
$300 million
$375 million
$400 million