2. Our company Incorportated purchased all of the outstanding stock of another c
ID: 2503466 • Letter: 2
Question
2. Our company Incorportated purchased all of the outstanding stock of another company paying $950,000 cash. Our company assumed all of the liabilities of another company. Book values and fair values of acquired assets and Liabilities were as follows
book value fair value
current asset net 130,000 125,000
property, pland and equipment net 600,000 750,000
liabilities 150,000 175,000
The Journal entry to record this acquistion would include a
a debit to cash in the amount 875,000
b credit to cash in the amount 950,000
c debit to Goodwill inteh amount 350,000
d debit to liabilities in amount of 175,000
Explanation / Answer
current assets(net) $130,000 $125,000
Property, Plant, equip(Net) 600,000 750,000
Liabilities
150,000 175,000
Lake would record goodwill of
$250,000
EXPLANATION
Goodwill is calculated as the difference of the price for
buying the company and its fair value of net assets (assets minus liabilities).
Goodwill = 950,000 - (750,000 + 125,000 - 175,000) =
250,000
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