The balance sheet of Cattleman's Steakhouse shows assets of $86,700 and liabilities of $14,500. The fair value of the assets is $90,500 and the fair value of its liabilities is $14,500. Longhorn paid Cattleman's $82,820 to acquire all of its assets and liabilities. Longhorn should record goodwill on this purchase of:

The missing multiple choices are:

$12,020

$2,980

$10,400

$6820

The correct option is $6,820

Explanation:

Goodwill is computed as the difference between the acquisition proceeds and fair value of net assets acquired.

Fair value of net assets=Fair value of asset - fair value of liabilities.

Fair value of assets is $90,500

fair value of liabilities is $14,500

fair value of net assets=$90,500-$14,500

=$76,000

Purchase consideration is $82,820

Goodwill = $$82,820-$76,000

Goodwil=$6820

This is the excess of purchase consideration paid over the net assets taken over as a result of the business acquisition