Princess has acquired several other companies. Assume that Princess purchased Kittery for $7,000,000 cash. The book value of Kittery's assets is $13,000,000 (market value, $16,000,000), and it has liabilities of $12,000,000 (market value, $12,000,000).

Requirements

1.

Compute the cost of goodwill purchased by Princess.

2.

Record the purchase of Kittery by Princess.

Requirement 1. Compute the cost of goodwill purchased by Princess.

Purchase price to acquire Kittery

Market value of Kittery's assets

Less: Market value of Kittery's liabilities

Less: Market value of Kittery's net assets

Goodwill