Goodwill Calculation from Business Acquisition

Purchase Price Overview

  • Transaction: Katy's Bar purchased a local bar.
  • Purchase Price: $130,000.

Balance Sheet Analysis of the Laundromat

  • Fair Value of Assets: $90,000.
  • Fair Value of Liabilities: $20,000.

Goodwill Calculation

  • Formula for Goodwill:
    • Goodwill = Purchase Price - (Fair Value of Assets - Fair Value of Liabilities).

Steps to Calculate Goodwill

  1. Calculate Net Fair Value of Assets:
    • Net Fair Value of Assets = Fair Value of Assets - Fair Value of Liabilities
    • Net Fair Value of Assets = $90,000 - $20,000 = $70,000.
  2. Calculate Goodwill:
    • Goodwill = Purchase Price - Net Fair Value of Assets
    • Goodwill = $130,000 - $70,000 = $60,000.

Options for Goodwill Result

  • Calculated Goodwill: $60,000.
  • Multiple Choice Options:
    • $60,000 (Correct Answer)
    • $40,000
    • $70,000
    • $110,000