Question

Question: On September 1, 2017, Winans Corporation acquired Aumont Enterprises for a cash payment of \(700,000. At the time of purchase, Aumont’s balance sheet showed assets of \)620,000, liabilities of \(200,000, and owners’ equity of \)420,000. The fair value of Aumont’s assets is estimated to be $800,000. Compute the amount of goodwill acquired by Winans.

Short answer

The amount of goodwill acquired by Winans is $100,000.

Step-by-step solution

Meaning of goodwill

When one firm buys another, goodwill is an intangible asset. It covers things like a company's reputation, brand, intellectual property, and trade secrets.

Calculation

Purchase price$700,000
Fair value of assets$800,000
Fair value of liabilities (200,000)

Fair value of net assets(600,000)

Value assigned to goodwill $100,000