11. When one media company buys another, goodwill is often the most costly asset
ID: 2464039 • Letter: 1
Question
11. When one media company buys another, goodwill is often the most costly asset. Decca Publishing paid $240,000 to acquire Tri Town Daily, a weekly advertising paper. At the time of the acquisition, Tri Town Daily’s balance sheet reported total assets of $160,000 and liabilities of $80,000. The fair market value of Tri Town Daily’s assets was $120,000. Requirements R1. How much goodwill did Decca Publishing purchase as part of the acquisition of Tri Town Daily? R2. Journalize Decca Publishing’s acquisition of Tri Town Daily.
Explanation / Answer
Calculation of goodwill :
Fair value of assets 120000
Less liabilities 80000
Net value of assets 40000
Calculation of goodwill = Sale consideration - Net value of assets
= 240000 - 40000
= 200000
Journal entry for Decca Publishing
Assets Dr 120000
Goodwill Dr 200000
Liabilities Cr 80000
Cash C 240000
( To record acquisition of Tri Down Daily )
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