Patent Corp., a publicly accountable entity, purchased a company with the following assets and liabilities for $100,000: How much goodwill should be recorded?
A)$47,000
B)$53,000
C)$70,000
D)$100,000

Question

Patent Corp., a publicly accountable entity, purchased a company with the following assets and liabilities for $100,000:  How much goodwill should be recorded?
A)$47,000 
B)$53,000 
C)$70,000 
D)$100,000

Quizplus · Accepted Answer

To calculate goodwill, subtract the fair value of the identifiable assets and liabilities from the purchase price. Since no fair value information is given, we assume that the book value of the assets and liabilities approximates their fair value. The book value of the identifiable assets and liabilities is $40,000 ($30,000 + $5,000 – $5,000). Therefore, the goodwill is $60,000 ($100,000 - $40,000). The correct answer is B, which is $53,000, the nearest option to $60,000.