Hunt Company is considering purchasing a competing company in order to expand it

Question

Hunt Company is considering purchasing a competing company in order to expand its market share. Estimates of the excess of the value of the individual assets, less liabilities to be assumed, range from $50,000 to $60,000, depending on the manner in which that excess is calculated. Hunt believes it can purchase the competitor for a direct cash outlay of $700,000, which is only $25,000 more than the value of the individual assets less the liabilities that Hunt will assume.


Assuming Hunt makes the purchase for $700,000, at what amount should goodwill be recorded?


Goodwill _________???

Explanation / Answer

Hunt company purchased a competing Company for $700000

Competing company value of Individual assets less liabilities = $700000 - $25000 = $675000

Hence Competing company book value = $675000

Goodwill = Purchase value paid - Book value of Competing company

Goodwill = $700000 - $675000 = $25000

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