The balance sheet of Cattleman's Steakhouse shows assets of $86,400 and liabilities of $15,000. The fair value of the assets is $90,000 and the fair value of its liabilities is $15,000. Longhorn paid Cattleman's $95,000 to acquire all of its assets and liabilities. Longhorn should record goodwill on this purchase of:
A) $3,600.
B) $5,000.
C) $20,000.
D) $23,600.
Answer: C
Which of the following is true concerning goodwill?
A) Goodwill can never be recorded.
B) Goodwill is recorded when a company is purchased for more than the fair value of its identifiable net assets.
C) Goodwill is recorded when the market value of a company exceeds the fair value of its identifiable net assets.
D) Goodwill is recorded as a revenue in the income statement.
Answer: B
In accounting, goodwill
A) Is never recorded.
B) May be recorded when a company's level of net income exceeds the industry average.
C) Must be expensed in the period when it is acquired.
D) May be recorded when the company purchases another business.
Answer: D
