Question

Robinson Company purchased Franklin Company at a price of $3,760,000. The fair market value of the net assets purchased equals $2,830,000. 1. What is the amount of goodwill that Robinson records at the purchase date? 2. Does Robinson amortize goodwill at year-end? 3. Robinson believes that its employees provide superior customer service, and through their efforts, Robinson believes it has created $1,480,000 of goodwill. Should Robinson Company record this goodwill?

Answer 1

Answer:

1. $930,000

2. No

3. No

Explanation:

1. The computation of the goodwill amount is shown below:

= Purchased price - the fair market value of the net assets purchased

= $3,760,000 - $2,830,000

= $930,000

2. No goodwill should not be amortized as it is subjected to an impairment test at the end of the year.  

3.  This goodwill would not be reported as only purchased goodwill is recorded