On May 1, 2015, Zoe Inc. purchased Branta Corp. for \$15,000,000 in cash. They only received \$12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at \$4,000,000, but in 2017 it dropped to \$2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 11PB
Textbook Problem
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On May 1, 2015, Zoe Inc. purchased Branta Corp. for \$15,000,000 in cash. They only received \$12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at \$4,000,000, but in 2017 it dropped to \$2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.

To determine

Introduction:

Goodwill is an intangible asset which is recorded at the time when a company purchases another company for a price higher than the net asset value of the purchased company.

To prepare:

Journal Entries to record goodwill and for the impairment of goodwill in the subsequent years.

Explanation of Solution

 Date Account Debit (\$) Credit (\$) May 1, 2015 Net Asset 12,000,000 Goodwill 3,000,000 Cash 15,000,000 (To record business purchase.)

Table (1)

• Net Assetsare assets and it is increased by \$12,000,000. Therefore, Net Assetsaredebited with \$12,000,000.
• Goodwill is an asset and it is increased by \$3,000,000. Therefore, Goodwill is debited with \$3,000,000.
• Cash is an asset and it is decreased by \$15,000,000. Therefore, cash is credited with \$15,000,000.

In year 2016, the market value of goodwill is \$4,000,000...

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