IV-(15 points). Journalize the following transactions of XYZ Company: a) Jan.3,
ID: 2600307 • Letter: I
Question
IV-(15 points). Journalize the following transactions of XYZ Company: a) Jan.3, 2012 XYZ Parent Co. purchased ABC Sub.Co. for $8,100,000 cash. ABC Co. has the following Assets and Liabilities at market value: 1,700,000 1,050,000 1,100,000 Inventory Bldg, equip. machinery 4,600, 000 Liabilities 3,000,000 Compute Goodwil1 and make the journal entry to introduce this transaction to the XYZ Co. books. b) Assume that an impairment test on Dec.31, 2014 showed there is an inparment in the value of the goodwill amounting to $1,300,000. Make the journal entry for the impairment and adjust the book value of the GoodwillExplanation / Answer
Solution - a:
Value of assets taken over = $1,700,000 + $1,050,000 + $1,100,000 + $4,600,000 = $8,450,000
Value of Liabilities taken over = $3,000,000
Value of Net Assets taken over = $8,450,000 - $3,000,000 = $5,450,000
Purchase consideration = $8,100,000
Goodwill = $8,100,000 - $5,450,000 = $2,650,000
Journal Entry at the time of Business purchase in XYZ Co:
Business Purchase A/c Dr $8,100,000
To Bank A/c Cr $8,100,000
Cash A/c Dr $1,700,000
Accounts Receivable A/c Dr $1,050,000
Inventory A/c Dr $1,100,000
Building, Equip. machinery A/c Dr $4,600,000
Goodwill A/c Dr $2,650,000
To Liabilities A/c Cr $3,000,000
To Business Purchase A/c Cr $8,100,000
Solution b:
Journal entry for goodwill impairment:
Loss on goodwill impairment Dr 1,300,000
To Goodwill A/c Cr 1,300,000
Revised book value of Goodwill = $2,650,000 - $1,300,000 = $1,350,000
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