The Apple Company agreed to purchase the Pear Company for $750, 000.At the date of purchase, Pear had current assets with a fair market value of $500, 000, noncurrent assets (including no marketable securities)with a fair market value of $800, 000, and liabilities of $600, 000.In accounting for this transaction, Apple should

Question

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Goodwill is calculated as the excess of the purchase price over the fair market value of the net assets acquired. In this case, the purchase price is $750,000, and the net assets (current assets of $500,000 plus noncurrent assets of $800,000 minus liabilities of $600,000) amount to $700,000. The excess of $50,000 ($750,000 - $700,000) is recorded as goodwill.

The Apple Company Agreed to Purchase the Pear Company for $750