The balance sheet of Cattleman's Steakhouse shows assets of $86,400 and liabilities of $15,000.The fair value of the assets is $90,000 and the fair value of its liabilities is $15,000.Longhorn paid Cattleman's $95,000 to acquire it.Longhorn should record goodwill on this purchase of:
A)$3,600.
B)$5,000.
C)$20,000.

Question

Quizplus · Accepted Answer

Goodwill is calculated as the difference between the purchase price and the fair value of the assets and liabilities acquired. In this case, the fair value of assets is $90,000, and the fair value of liabilities is $15,000, so the net fair value is $75,000. When Longhorn paid $95,000, the excess amount of $20,000 is considered goodwill.

The Balance Sheet of Cattleman's Steakhouse Shows Assets of $86,400