Question

Alpha Company was recently sold for $1,250,000. Alpha assets & liabilities consisted of the following: Item Amount Cash $75,000 Inventory $275,000 Property, Plant & Equipment (net) $750,000 Accounts Payable $350,000 Using this information, how much should be recorded as Goodwill for this transaction?

Answer 1

Answer:

Goodwill    = $ 500,000

Explanation:

Alpha  Company

Assets

Item Amount

Cash $75,000

Inventory $275,000

Property, Plant & Equipment (net) $750,000

Total Assets = $ 1100,000

Liabilities

Accounts Payable $350,000

Total Liabilities = $ 350,000

Good will is calculated by adding the difference of total assets and liabilities to the cash received.

Goodwill = Total Liabilities + Cash Received - Total Assets

                =  $ 350,000+$1,250,000- $ 1100,000

                = $ 500,000