Hunt Company is considering purchasing a competing company in order to expand it

Question

Hunt Company is considering purchasing a competing company in order to expand its market share. Estimates of the excess of the value of the individual assets, less liabilities to be assumed, range from $50,000 to $60,000, depending on the manner in which that excess is calculated. Hunt believes it can purchase the competitor for a direct cash outlay of $700,000, which is only $25,000 more than the value of the individual assets less the liabilities that Hunt will assume.


Assuming Hunt makes the purchase for $700,000, at what amount should goodwill be recorded?


Goodwill _________???

Explanation / Answer

1. The question is not clear.

2. If Hunt has paid something more than the net asset value(value of assets - liabilities), that amount will be good will.

3. If the amount paid is less than the net asset value(value of assets - liabilities), there is no Goodwill. The entry in the books of the acquired business will be:

If there is goodwill:

Dr Assets (Specify).........

Dr Goodwill ......

Cr Capital ................................. $700,000

Cr Outside liabilities(Specify)

If there is no goodwill:

Dr Assets(Specify) .........

Cr Capital ................................. $700,000

Cr Outside liabilities(Specify)

.

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