Question

Terps Company reports the following amounts: Book Value Fair Value Assets $ 400,000 $ 500,000 Liabilities 45,000 45,000 Net income 25,000 How much goodwill would be recorded if another company purchases Terps Company, assuming its liabilities, for $635,000

Answer 1

Answer:

$180,000

Explanation:

Goodwill = Purchase Price - Net Assets Taken over at Fair Value

where,

Purchase Price = $635,000

Net Assets Taken over at Fair Value = $ 500,000 - $45,000 = $455,000

therefore,

Goodwill = $635,000 - $455,000 = $180,000