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Buchanan Imports purchased McLaren Corporation for $5,000,000 cash when McLaren had net assets worth $4,500,000. A. What is the amount of goodwill in this transaction? B. What is Buchanan’s journal entry to record the purchase of McLaren? C. What journal entry should Buchanan write when the company internally generates additional goodwill in the year following the purchase of McLaren?

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 10PA
Textbook Problem
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Buchanan Imports purchased McLaren Corporation for $5,000,000 cash when McLaren had net assets worth $4,500,000.

A. What is the amount of goodwill in this transaction?

B. What is Buchanan’s journal entry to record the purchase of McLaren?

C. What journal entry should Buchanan write when the company internally generates additional goodwill in the year following the purchase of McLaren?

To determine

(a)

Introduction:

Goodwill can be referred to as the significance of certain beneficial factors that an enterprise possesses which allows them to generate a greater rate of earnings and proceeds.

To calculate:

Theamount of the goodwill.

Explanation of Solution

Calculation of amount of goodwill for Company BI:

Goodwill=PurchasePriceNetAssetsWorth

Substitute $5,000,000 for purchase price and $4,500,000 for net assets worth in teh above formula

To determine

(b)

To journalize:

The amount of the goodwill on purchase of Company MC.

To determine

(c)

To explain:

The additional goodwill generated by company MI in the year following the buying of Company MC.

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Chapter 11 Solutions

Principles of Accounting Volume 1
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