Backstreets Co. recently acquired all of Jungleland, Inc.'s net assets in a business acquisition. The cash purchase price was $7.7 million. Jungleland, Inc.'s assets and liabilities had the following appraised values immediately prior to the acquisition:

land, $2.0 million

buildings, $3.7 million

inventory, $2.5 million

long-term notes payable, for which Backstreets Co. assumes payment responsibilities, $1.8 million.

Required:

1. How much goodwill will result from this transaction?

The goodwill that resulted from the transaction is $1.3 million, the excess paid by Backstreets Co. over the net assets of Jungleland Inc. acquired

Explanation:

Goodwill is the excess of purchase consideration over net assets acquired in a business combination.

The total net assets acquired can be deduced as total assets less total liabilities:

Land $2m

Buildings $3.7m

Inventory $2.5m

total assets 8.2m

Liabilities ($1.8m)

Net Assets $6.4 m

Purchase price $7.7 m

Goodwill is $1.3m ($7.7m - $6.4m)

The goodwill is the advantage that the owners business have over the new owners being the pioneers that set the business on the right path