Horngren's Financial & Managerial Accounting, The Financial Chapters (Book & Access Card)
5th Edition
ISBN: 9780134078939
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Question
Chapter 9, Problem 9.26E
1.
To determine
To Compute: thecost of the goodwill purchased by P Company.
2.
To determine
To record: the purchase of K Company by P Company.
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Students have asked these similar questions
has acquired several other companies. Assume that
Princess
purchased
Kittery
for
$7,000,000
cash. The book value of
Kittery's
assets is
$13,000,000
(market value,
$16,000,000),
and it has liabilities of
$12,000,000
(market value,
$12,000,000).
Requirements
1.
Compute the cost of goodwill purchased by
Princess.
2.
Record the purchase of
Kittery
by
Princess.
Requirement 1. Compute the cost of goodwill purchased by
Princess.
Princess has acquired several other companies. Assume that Princess purchased Kittery for $6,000,000 cash. The book value of Kittery's assets is $16,000,000
(market value, $18,000,000), and it has liabilities of $14,000,000 (market value, $14,000,000).
Requirements
1.
2.
Compute the cost of goodwill purchased by Princess.
Record the purchase of Kittery by Princess.
Requirement 1. Compute the cost of goodwill purchased by Princess.
Purchase price to acquire Kittery
Market value of Kittery's assets
Less: Market value of Kittery's liabilities
Less: Market value of Kittery's net assets
Goodwill
Date
4
Requirement 2. Record the purchase of Kittery by Princess, Inc. (Record debits first, then credits. Select the explanation on the last line of the journal
entry table.)
Accounts and Explanation
6000000
10
Debit
Credit
Compute the amount of acquired Goodwill, including contingent earnings and bargain purchase
Assume that you are charged with assigning fair values related to a $3,800,000 acquisition. You determine that the fair value of the net identifiable tangible assets is $1,850,000. You also conclude that the purchase included a Customer List with a fair value at $340,000.
a. How much Goodwill will you record in this acquisition?
$ 1,610,000 ✓
b. Continuing from part (a), now also assume that the purchase and sale agreement requires the payment of an additional $925,000 if the subsidiary achieves a certain level of earnings. You estimate the fair value of that contingent earnings clause in the agreement to be $220,000.
How does this additional information affect your computation of Goodwill?
The amount of Goodwill recorded is $
1,830,000
c. This part of the exercise is independent parts (a) and (b). Assume that the purchase price is $3,800,000 and that fair value of the net identifiable tangible…
Chapter 9 Solutions
Horngren's Financial & Managerial Accounting, The Financial Chapters (Book & Access Card)
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Similar questions
- Perkins has acquired several other companies. Assume that Perkins purchased Kettle for $11,000,000 cash. The book value of Kettle's assets is $15,000,000 (market value, $20,000,000), and it has liabilities o: $10,000,000 (market value, $10,000,000). Requirements Compute the cost of goodwill purchased by Perkins. Record the purchase of Kettle by Perkins. 1. 2. Requirement 1. Compute the cost of goodwill purchased by Perkins. Purchase price to acquire Kettle Market value of Kettle's assets Less: Market value of Kettle's liabilities Less: Market value of Kettle's net assets Goodwill Requirement 2. Record the purchase of Kettle by Perkins, Inc.. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Date Accounts and Explanation Debit Creditarrow_forwardDetermine correct value of goodwillarrow_forwardDon't give answer in image formatarrow_forward
- Robinson Company purchased Franklin Company at a price of $3,820,000. The fair market value of the net assets purchased equals $2,750,000. 1. What is the amount of goodwill that Robinson records at the purchase date? 2. Does Robinson amortize goodwill at year-end? 3. Robinson believes that its employees provide superior customer service, and through their efforts, Robinson believes it has created $1,520,000 of goodwill. Should Robinson Company record this goodwill? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the amount of goodwill that Robinson records at the purchase date? Goodwillarrow_forwardRobinson Company purchased Franklin Company at a price of $3,950,000. The fair market value of the net assets purchased equals $2,860,000. 1. What is the amount of goodwill that Robinson records at the purchase date? 2. Does Robinson amortize goodwill at year-end? 3. Robinson believes that its employees provide superior customer service, and through their efforts, Robinson believes it has created $1,400,000 of goodwill. Should Robinson Company record this goodwill? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Does Robinson amortize goodwill at year-end? Does Robinson amortize goodwill at year-end?arrow_forwardABC Company purchased an asset which has the following information: 1. List price of $60000 2. Sales tax of $ 3000 3. Freight charges of $1500 4. Installation charges of $5000 5. Advertising charges of $10000 6. Interest charges of $2000 Requirement: required: A. Which of the above payments must be included in the totala acquisitioncost. B. Calculate the total acquisition cost of the asset. check_circle Expert Answer thumb_up thumb_down Step 1 The cost of the asset includes all those cost which makes the asset relevant for it's intended use. These expenditure include the non refundable taxes, import duties, freight charges and installation The cost of the asset excludes those expenditures for promotional activities, administrative and other overhead expenditures, expenditure on captive consumption, expenditure incurred for opening and inaugurating new facilities. In this case advertising expenditure is excluded and Interest depends on the various factors…arrow_forward
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