Question

On December 31, 2019, the Mega Corporation paid $104,000 for the purchase of Cafe Company. On December 31, 2019, the Café Company had the following book values for its assets and liabilities:

Account	Book Value
Cash	$16,000
Inventory	31,400
Equipment (net)	85,700
Notes payable	46,000
Common stock	19,500
Retained earnings	67,600

An appraisal of the Café Company determined that the inventory was undervalued by $4,900 and the equipment was overvalued by $6,500. Calculate the amount of goodwill that the Mega Corporation should record on December 31, 2019.

Answer 1

Goodwill is the excess amount paid over the net assets acquired by company
Goodwill	Purchase price paid - Net assets acquired
Net assets acquired
Cash	$16,000
Inventory	$36,300	31400+4900
Equipment	$79,200	85700-6500
Less: Notes payable	-$46,000
Net assets acquired	$85,500
Goodwill	104000-85500
Goodwill	$18,500
Thus, goodwill mega should record is $18,500