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CGCPA
CGCPA, CPA
Category: Finance
Satisfied Customers: 3818
Experience:  40+ years experience in taxes and financial planning
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How do you journalize goodwill as the selling company

Customer Question

How do you journalize goodwill as the selling company?
Submitted: 4 years ago.
Category: Finance
Expert:  RD replied 4 years ago.

RD :

Do you have goodwill on the Balance Sheet? Or are you selling the business and getting amount towards goodwill from the buyer?

Customer:

No goodwill on the balance sheet. FMV is 1,600,000, the buyer has agreed to pay me 1,900,000. Buyer is coming on as a 50% partner.

Customer:

No goodwill on the balance sheet. FMV is 1,600,000, the buyer has agreed to pay me 1,900,000. Buyer is coming on as a 50% partner.

RD :

If this is a partnership - Is he buying 50% of your interest directly?

Customer:

yes

Expert:  CGCPA replied 4 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

With a FMV of $1,600,000 and a price of $1,900,000 the buyer is paying $300,000 for goodwill.The journal entry will be as follows:

 

Debit Cash $1,900,000

Credit Capital (or if an S Corp Capital stock) $1,900,000

 

There is no entry for goodwill on the seller's side simply because the buyer is investing in the business. The goodwill would only be recorded on the buyers side of this transaction and then only if the buyer is a corporation or LLC.

CGCPA, CPA
Category: Finance
Satisfied Customers: 3818
Experience: 40+ years experience in taxes and financial planning
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