Elizabeth Pie Company has been in business for 30 years and has developed a large group of

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Elizabeth Pie Company has been in business for 30 years and has developed a large group of loyal restaurant customers. Bonanza Foods made an offer to buy Elizabeth Pie Company for $5,000,000. The book value of Elizabeth Pie’s recorded assets and liabilities on the date of the offer is $4,300,000 with a market value of $4,500,000. Elizabeth Pie also
(1) Holds a patent for a pie crust fluting machine that the company invented (the patent with a market value of $200,000 was never recorded by Elizabeth Pie because it was developed internally)
(2) Estimates goodwill from loyal customers to be $310,000 (also never recorded by the company). Should Elizabeth Pie Company management accept Bonanza Foods’ offer of $5,000,000? If so, compute the amount of goodwill that Bonanza Foods should record on the date of the purchase.

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
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