Question

The balance sheet of Flo's Restaurant showed total assets of $560,000, liabilities of $184,000 and stockholders’ equity of $426,000. An appraiser estimated the fair value of the restaurant assets at $665,000. If Alice Company pays $905,000 cash for the restaurant, what is the amount of goodwill?

Answer 1

$424,000

Step-by-step explanation:

Data provided as per the given question as below

Liabilities = $184,000

Fair value of the restaurant assets = $665,000

Cash = $905,000

The computation of amount of goodwill is shown below:-

Amount of goodwill = Cash - (Fair value of the restaurant assets - Liabilities)

= $905,000 - ($665,000 - $184,000)

= $424,000