Questions: Multiple Choice Question Due in less than 4 hours Benson Company paid 180,000 to purchase a competitor's business. At the time of the purchase, the business had assets with a book value of 150,000 and a fair market value of 160,000. Benson assumed business liabilities of 20,000. The total amount of goodwill is 50,000. 20,000. 40,000 30,000.

Multiple Choice Question Due in less than 4 hours

Benson Company paid 180,000 to purchase a competitor's business. At the time of the purchase, the business had assets with a book value of 150,000 and a fair market value of 160,000. Benson assumed business liabilities of 20,000. The total amount of goodwill is
50,000.
20,000.
40,000
30,000.

Transcript text: Multiple Choice Question Due in less than 4 hours Benson Company paid $\$ 180,000$ to purchase a competitor's business. At the time of the purchase, the business had assets with a book value of $\$ 150,000$ and a fair market value of $\$ 160,000$. Benson assumed business liabilities of $\$ 20,000$. The total amount of goodwill is $\qquad$ \$50,000. \$20,000. \$40,000 \$30,000.

Solution

Solution Steps

To calculate the goodwill, we need to determine the excess amount paid over the fair market value of the net assets acquired. First, calculate the net assets by subtracting the liabilities from the fair market value of the assets. Then, subtract the net assets from the purchase price to find the goodwill.

Step 1: Calculate Net Assets

To find the net assets, we subtract the liabilities from the fair market value of the assets:

\[ \text{Net Assets} = \text{Fair Market Value of Assets} - \text{Liabilities} \]

Substituting the values:

\[ \text{Net Assets} = 160,000 - 20,000 = 140,000 \]

Step 2: Calculate Goodwill

Goodwill is calculated by subtracting the net assets from the purchase price:

\[ \text{Goodwill} = \text{Purchase Price} - \text{Net Assets} \]

Substituting the values:

\[ \text{Goodwill} = 180,000 - 140,000 = 40,000 \]