E7-48B. (Learning Objectives 5, 6: Compute and account for goodwill and impairme
ID: 2547965 • Letter: E
Question
E7-48B. (Learning Objectives 5, 6: Compute and account for goodwill and impairment)LO 5 6 Assume Doltron Co. paid $18 million to purchase Bailey Industries. Assume further that Bailey Industries had the following summarized data at the time of the Doltron Co. acquisition (amounts in millions): Bailey Industries Assets Liabilities and Equity Current assets... Long-term assets 26 Stockholders' equity... $43 $43 Bailey Industries' current assets had a current market value of $17 million, long-term assets had a current market value of only $21 million, and liabilities had a market value of $24 million. Requirements 1. Compute the cost of goodwill purchased by Doltron Co. 2. Journalize Doltron Co.'s purchase of Bailey Industries 3. Explain how Doltron Co. will account for goodwillExplanation / Answer
1. Cost of Goodwill Purchsed By Doltron Co
= Cash paid to Purchase Nailey shares - (Current MArket Value of Current Assets + Current Market Value of the Long term assets - Current Market Value of the Liablities)
= $ 18 - ($ 17 + $ 21 - $ 24)
=$ 18 - $ 14
= $ 4 Million the cost of good will
2. Investment in shares of Bailley Industries A/c Dr. $ 14 Million
Good Will A/c Dr. $ 4 Million
To Cash or Bank A/c Cr. $ 18 Million
3. The Doltron will account good will paid on acquiring Bailey industries same will be shown on the book of account on assets side same will be writt off over period of time by Doltron Co.
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