Question

The balance sheet of Cattleman's Steakhouse shows assets of $86,800 and liabilities of $14,800. The fair value of the assets is $89,600 and the fair value of its liabilities is $14,800. Longhorn paid Cattleman's $84,020 to acquire all of its assets and liabilities. Longhorn should record goodwill on this purchase of:

Answer 1

Answer:

The goodwill is $9,220

Explanation:

Goodwill is the excess of purchase consideration paid to acquire a business over the fair value of net assets acquired.

Fair value of net assets acquired is the difference between the fair of assets acquired over the fair value of liabilities taken up which is shown below.

Net assets=$89,600-$14,800

Net assets =$74,800

Since purchase consideration paid is $84020

Goodwill=$84,020-$74800

Goodwill=$9,220

The goodwill of $9220  represents the premium paid over the net assets of Catteman's Steakhouse as a compensation to the owners of the business in return for their efforts of running the business and see go through different phases of development since the establishment of the business.