The balance sheet of Flo's Restaurant showed total assets of $360,000, liabilities of $104,000 and stockholders’ equity of $306,000. An appraiser estimated the fair value of the restaurant assets at $415,000. If Alice Company pays $505,000 cash for the restaurant, what is the amount of goodwill?

$194,000

Explanation:

Goodwill is an intangible asset acquired when a business is purchased. It is the excess of cash paid from the fair value of its total assets less total liabilities.

Cash paid - Net asset = goodwill

Fair value of asset = $415,000

Liability = $104,000

Cash paid = $505,000

Net asset = $415,000 - $104,000 = $311,000

Goodwill = $505,000 - $311,000 = $194,000

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