The balance sheet of Flo's Restaurant showed total assets of $700,000, liabilities of $240,000 and stockholders' equity of $460,000. An appraiser estimated the fair value of the restaurant assets at $840,000. If Alice Company pays $1,185,000 cash for the restaurant, what is the amount of goodwill?

Question

Quizplus · Accepted Answer

The book value of the restaurant is $700,000 ($240,000 liabilities + $460,000 equity). The fair value of the restaurant assets is $840,000. 
Therefore, goodwill = purchase price - fair value of assets = $1,185,000 - $840,000 = $345,000. 
Thus, the correct choice is (C) $585,000.

The Balance Sheet of Flo's Restaurant Showed Total Assets of $700,000