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On September 1, 2015, Vernon Corporation acquired Barlow Enterprises for a cash payment of $850,000. At the time of purchases, Barlow's balance sheet showed assets of $620,000, liabilities of $240,000, and owner's equity of $420,000. The fair value of Barlow's assets is estimated to be $970,000. Compute the amount of goodwill acquired by Vernon.

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Answer:

goodwill = $120,000

Explanation:

the basic formula used to calculate the goodwill of an acquisition is:

goodwill = total consideration paid - fair value of net assets

  • total consideration paid = $850,000
  • fair value of net assets = fair value of assets - fair value of liabilities = $970,000 - $240,000 = $730,000

goodwill = $850,000 - $730,000 = $120,000

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