Computing and recording goodwillMike Wallace purchased the business Magnum Supply Co. for...

Computing and recording goodwill

Mike Wallace purchased the business Magnum Supply Co. for $275,000 cash and assumed all liabilities at the date of purchase. Magnum’s books showed tangible assets of $280,000, liabilities of $40,000, and equity of $240,000. An appraiser assessed the fair market value of the tangible assets at $270,000 at the date of purchase. Wallace’s financial condition just prior to the purchase is shown in the following statements model:

Required

a. Compute the amount of goodwill purchased.

b. Record the purchase in a financial statements model like the preceding one.

c. Record the purchase in general journal format.