An Acquisition Transaction Results in $90,000 of Goodwill

question 118

Essay

An acquisition transaction results in $90,000 of goodwill. Several years later a worksheet is being produced to consolidate the two companies. Describe in words at what amount goodwill will be reported at this date.

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Definitions:

Accounts Receivable

The money owed to a company by its customers for goods or services delivered but not yet paid for.

Average Collection Period

The average amount of time that a receivable is outstanding; calculated by dividing 365 days by the accounts receivable turnover.

Net Credit Sales

Total sales made on credit minus returns and allowances, indicating the actual sales revenue expected to be collected.

Vertical Analysis

A method of financial statement analysis in which each line item is listed as a percentage of a base figure, facilitating comparison across different periods.