Big Bertha’s Birds purchased Finkel’s Finches for $100,000 and the book value was $50,000. If Big Bertha’s amortized the goodwill off its balance sheet for the maximum time period allowed, what would the annual charge against earnings be?
Explanation
Answer - E - $1,250 would be amortized annually off the balance sheet for the maximum time period allowed, which is 40 years. The Goodwill was $50,000 ($100,000 − $50,000) divided by 40 = $1,250.
Key Takeaway: The maximum time period allowed for amortization is 40 years. The goodwill total is divided by the number of years for amortization to produce the annual charge against earnings.
