Northern purchased the entire business of Southern including all its assets and liabilities for $654,500. Below is information related to the two companies: Northern Southern Fair value of assets $ 1,054,000 $ 787,000 Fair value of liabilities 582,000 302,000 Reported assets 812,000 643,000 Reported liabilities 484,000 269,000 Net Income for the year 58,000 55,000 How much goodwill did Northern pay for acquiring Southern?

Goodwill paid for acquiring Southern is $ 169.500

Explanation:

When a Business all the Assets and Liabilities of a Business are purchased, a business acquisition takes place. Goodwill arises with Business Acquisitions to reflect the amount of intangible assets that could not the identified with the other Assets Acquired or Liabilities assumed by the Acquirer.

Assets Acquired or Liabilities assumed by the Acquirer must be measured at their Fair Value not the Reported Value for purposes of Goodwill Calculation at the Acquisition Date.

Calculation of Goodwill is done by opening a Journal entry as follows:

Debits:

Goodwill (Balancing figure) $ 169.500

Fair value of assets $ 787,000

Credits:

Fair value of liabilities $ 302,000

Payment Transferred (Bank / Cash) $654,500

Goodwill is the excess of Consideration transferred by Acquirer over the Net Assets Acquired at Fair Value on Acquisition Date