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Q5BE

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Intermediate Accounting (Kieso)
Found in: Page 638

Short Answer

Question: On September 1, 2017, Winans Corporation acquired Aumont Enterprises for a cash payment of $700,000. At the time of purchase, Aumont’s balance sheet showed assets of $620,000, liabilities of $200,000, and owners’ equity of $420,000. The fair value of Aumont’s assets is estimated to be $800,000. Compute the amount of goodwill acquired by Winans.

The amount of goodwill acquired by Winans is $100,000.

See the step by step solution

Step by Step Solution

Step 1: Meaning of goodwill

When one firm buys another, goodwill is an intangible asset. It covers things like a company's reputation, brand, intellectual property, and trade secrets.

Step 2: Calculation

Purchase price$700,000Fair value of assets$800,000Fair value of liabilities (200,000)

Fair value of net assets(600,000)

Value assigned to goodwill $100,000

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