Question

(B) Jiang Company purchased a fast-food Company for $1,400,000. The fair market values of the assets...

(B) Jiang Company purchased a fast-food Company for $1,400,000. The fair market values of the assets and liabilities purchased were as follows. Required: Calculate the amount of goodwill purchased

Furniture $20,000

Equipment 300,000

Land 200,000

Building 650,000

Accounts payable 30,000

Bank loans 70,000].

Business   Accounting   
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Answer #1

Formula for Goodwill is:

Goodwill = Purchase price paid - Fair value of net assets acquired

Purchase price paid (given) = $1400000

Fair value of net assets acquired = Fair value of assets acquired - Fair value of liabilities assumed

Fair value of net assets acquired = ($20000 + $300000 + $200000 + $650000) - ($30000 + $70000)

Fair value of net assets acquired = $1170000 - $100000 = $1070000

Now,

Goodwill = Purchase price paid - Fair value of net assets acquired

putting the values in the above formula, we get,

Goodwill = $1400000 - $1070000 = $330000

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