The workout asks us to calculate goodwill, assuming the equity purchase price is 2,500 million and all balance sheet items are at fair value One thing to point out, that equity purchase price of 2,500 million but our balance sheet is in thousands We just need to be careful of that So let's start off our answer, our goodwill calculation will require us to find the equity purchase price which was the 2.5 million and we'll then need to find the shareholders' equity at fair value If we can find the difference between those two, that will give us deal goodwill So we now need to go looking for shareholder's equity at fair value and we start that by taking the shareholders' equity at book value I can see that just above in the balance, so it's 2,949,071 A little strange at first, it seems we're purchasing the company for 2.5 million and yet the shareholders' equity at book value is more However, let's keep looking That shareholders' equity at book value, we now need to either increase by asset steps or decrease by asset step downs and there is one asset step down that we have to do If we look further up into the assets, we can see that there is goodwill in the target company of roughly 1.4 million We need to drop that down to zero, we need to zero it out And that was 1,393,968 So I can now see that my shareholders' equity at book value (which was 2.9 million) gets stepped down to shareholders' equity at fair value So we can now see deal goodwill is the equity purchase price of 2.5 million minus the shareholders' equity at fair value So the deal goodwill is just under a million