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Chapter 12: Q5BE (page 638)

Question: On September 1, 2017, Winans Corporation acquired Aumont Enterprises for a cash payment of \(700,000. At the time of purchase, Aumont鈥檚 balance sheet showed assets of \)620,000, liabilities of \(200,000, and owners鈥� equity of \)420,000. The fair value of Aumont鈥檚 assets is estimated to be $800,000. Compute the amount of goodwill acquired by Winans.

Short Answer

Expert verified

The amount of goodwill acquired by Winans is $100,000.

Step by step solution

01

Meaning of goodwill

When one firm buys another, goodwill is an intangible asset. It covers things like a company's reputation, brand, intellectual property, and trade secrets.

02

Calculation

Purchase price$700,000
Fair value of assets$800,000
Fair value of liabilities (200,000)

Fair value of net assets(600,000)

Value assigned to goodwill $100,000

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