The balance sheet of Flo's Restaurant showed total assets of $600,000, liabilities of $160,000 and stockholders’ equity of $540,000. An appraiser estimated the fair value of the restaurant assets at $680,000. If Alice Company pays $770,000 cash for the restaurant, what is the amount of goodwill?

C. $250000

Explanation:

Given:

Total assets = $600,000

Liabilities = $160,000

Stockholders’ equity = $540,000.

Fair value of the restaurant assets = $680,000

Alice Company pays = $770,000

Goodwill is when a company looking to acquire another company is willing to pay a price significantly higher than the fair market value of the company’s net assets.

Net Assets = Fair value of assets - Total Liabilities

= $680000 - $160,000

= $520,000

Amount of Goodwill = cash paid - net assets

= $770,000 - $520,000

= $250000