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8 August, 11:49

The balance sheet of Flo's Restaurant showed total assets of $600,000, liabilities of $160,000 and stockholders' equity of $540,000. An appraiser estimated the fair value of the restaurant assets at $680,000. If Alice Company pays $770,000 cash for the restaurant, what is the amount of goodwill?

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  1. 8 August, 14:02
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    C. $250000

    Explanation:

    Given:

    Total assets = $600,000

    Liabilities = $160,000

    Stockholders' equity = $540,000.

    Fair value of the restaurant assets = $680,000

    Alice Company pays = $770,000

    Goodwill is when a company looking to acquire another company is willing to pay a price significantly higher than the fair market value of the company's net assets.

    Net Assets = Fair value of assets - Total Liabilities

    = $680000 - $160,000

    = $520,000

    Amount of Goodwill = cash paid - net assets

    = $770,000 - $520,000

    = $250000
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