Question

The balance sheet of cattleman's steakhouse shows assets of $86,400 and liabilities of $15,000. the fair value of the assets is $90,000 and the fair value of its liabilities is $15,000. longhorn paid cattleman's $95,000 to acquire all of its assets and liabilities. longhorn should record goodwill on this purchase of: multiple choice

O $20,000.
O $3,600.
O $5,000.
O $23,600.

Answer 1

Goodwill is calculated by subtracting the fair value of net assets from the purchase price. In this case, it results in a goodwill of $20,000 for Longhorn's acquisition.

Step-by-step explanation:

When Longhorn acquires Cattleman's Steakhouse, they paid $95,000 for the assets and liabilities of Cattleman's. The fair value of the assets is $90,000 and the fair value of liabilities is $15,000. Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. In this case, the net assets at fair value are $90,000 (assets) - $15,000 (liabilities) = $75,000. Therefore, goodwill would be the purchase price ($95,000) minus the fair value of net assets ($75,000), which equals $20,000.