# Farm Fresh Agriculture Company purchased Sunny Side Egg Distribution for $400,000 cash when Sunny Side had net assets worth$390,000. A. What is the amount of goodwill in this transaction? B. What is Farm Fresh Agriculture Company’s journal entry to record the purchase of Sunny Side Egg Distribution? C. What journal entry should Farm Fresh Agriculture Company write when the company tests for impairment and determines that goodwill is worth $1,000 in the year following the purchase of Sunny Side? FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 #### Solutions Chapter Section FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 Chapter 11, Problem 12PB Textbook Problem 1 views ## Farm Fresh Agriculture Company purchased Sunny Side Egg Distribution for$400,000 cash when Sunny Side had net assets worth $390,000.A. What is the amount of goodwill in this transaction?B. What is Farm Fresh Agriculture Company’s journal entry to record the purchase of Sunny Side Egg Distribution?C. What journal entry should Farm Fresh Agriculture Company write when the company tests for impairment and determines that goodwill is worth$1,000 in the year following the purchase of Sunny Side?

To determine

(a)

Introduction:

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

To compute:

The amount of goodwill.

### Explanation of Solution

Computation of amount of goodwill:

Goodwill can be computed by using the following formula,

Goodwill=Cash PaidValue of Net Assets

Substitute $400,000 for cash paid and$390,000 for the value of net assets in the above formula

To determine

(b)

Introduction:

Journal entries record business transactions. These transactions have double effect on accounts such that total of all assets equate with liabilities and equities.

To prepare:

Journal Entries to record goodwill.

To determine

(c)

Introduction:

Impairment loss is calculated when the assets book value is lower than its market value. Impairment loss is charged to income statement as an expense in the year of recognition.

To prepare:

Journal Entries to record impairment of goodwill.

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