Joyful Sound Music Company purchased the net assets (i.e., assets minus liabilities) of Metrodome Company for $845,000.

Question:

Joyful Sound Music Company purchased the net assets (i.e., assets minus liabilities) of Metrodome Company for $845,000. Metrodome is a retailer of music, instruments, and related items. Its net assets have been carried on its own books at a total of $530,000. An appraisal of all of Metrodome’s assets and liabilities revealed a net fair market value of $783,000.

Joyful is willing to pay extra because of Metrodome’s very loyal retail customers, most of whom have dealt exclusively with the company for more than 30 years.

(a) What is the amount of goodwill that Joyful should record at acquisition of Metrodome?

(b) What might cause the purchased goodwill in this situation to become impaired?

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...