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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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