Company purchased a fast food restayrant for $1,400,000. Thefair market value of

Question

Company purchased a fast food restayrant for $1,400,000. Thefair market value ofthe assets purchased were as follows. Noliabilities were assumed. Equipment                                 $320,000 Land                                          $200,000 Building                                    $650,000 Franchise (5-yearlife)               $100,000    how do I calculate the amount ofgoodwill purchased Company purchased a fast food restayrant for $1,400,000. Thefair market value ofthe assets purchased were as follows. Noliabilities were assumed. Equipment                                 $320,000 Land                                          $200,000 Building                                    $650,000 Franchise (5-yearlife)               $100,000    how do I calculate the amount ofgoodwill purchased

Explanation / Answer

The initial valuation of goodwillis: the excess of the purchase price over the fair value ofthe net assets acquired.    Goodwill =   Purchaseprice - Fair value of net assets                 =    $1,400,000 - $(320,000 +200,000 + 650,000 +100,000)                 =    $1,400,000 - $1,270,000                  =    $130,000    Goodwill =   Purchaseprice - Fair value of net assets                 =    $1,400,000 - $(320,000 +200,000 + 650,000 +100,000)                 =    $1,400,000 - $1,270,000                  =    $130,000

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