You are the staff accountant for Harry Banister, who owns a small nursery and landscaping business. Mr. Banister is considering the purchase of a competing business, Rock Creek Nurseries (RCN). The sum of the fair market values of RCNs separately identifiable assets is $350,000. Mr. Banister determined this amount by having an appraisal made before making an offer. The offer he made is equal to this amount: $350,000. The owner of RCN declined the offer, and indicated that he thinks his business is worth at least $400,000, considering the goodwill that exists. Mr. Banister cannot understand how the business can be worth more than $350,000, since this was the price established by the appraisal.

Write a memo to Mr. Banister that explains the term goodwill; why goodwill may exist for the business he wants to purchase; how to access the value of GW and a fair purchase price; and any expected effects on his companys future financial statements. Make sure to define all terms, offer relevant examples to color your definitions, and offer full explanations to assist your client.