A client of yours notified you that she just closed a deal to purchase an existing business. It’s a pretty hefty purchase. As part of the purchase of the business, she received the land, the building, all the equipment, and the entire merchandise inventory of the company purchased. Your client emailed you a copy of the closing statement along with the breakdown of the purchase price shown below. In the email, your client expressed concern about how the $1,500,000 paid for the land and building should be accounted for. She also wanted to know the proper way to account for the merchandise inventory and the goodwill that was purchased.
Asset List
Description Amount
Land and Building....................................................................... $1,500,000
Equipment.................................................................................... 675,000
Inventory...................................................................................... 425,000
Goodwill...................................................................................... 1,400,000
Total Purchase Price..................................................................... $4,000,000
Requirement
Prepare an email to your client explaining how the $1,500,000 should be allocated between the land and building as well as how the merchandise inventory and goodwill should be accounted for.