Concept explainers
a.
Introduction: Auditing is referred to as the verification activity of the financial statements of a company which is made by the auditor. For the purpose of auditing, the company can appoint an external or an internal auditor.
The inherent risk related to the recording of impairment.
b.
Introduction: Auditing is referred to as the verification activity of the financial statements of a company which is made by the auditor. For the purpose of auditing, the company can appoint an external or an internal auditor.
The audit evidence which are needed to evaluate the appropriateness of the impairment.
c.
Introduction: Auditing is referred to as the verification activity of the financial statements of a company which is made by the auditor. For the purpose of auditing, the company can appoint an external or an internal auditor.
The use of a specialist to assist the auditor.
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Auditing: A Risk Based-Approach (MindTap Course List)
- 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.arrow_forwardHamilton Companys balance sheet on January 1, 2019, was as follows: Korbel Company is considering purchasing Hamilton (a privately held company) and discovers the following about Hamilton: a. No allowance for doubtful accounts has been established. A 10,000 allowance is considered appropriate. b. Marketable securities are valued at cost. The current market value is 60,000. c. The LIFO inventory method is used. The FIFO inventory of 140,000 would be used if the company is acquired. d. Land, included in property, plant, and equipment, which is recorded at its cost of 50,000, is worth 120,000. The remaining property, plant, and equipment is worth 10% more than its depreciated cost. e. The company has an unrecorded trademark that is worth 70,000. f. The companys bonds are currently trading for 130,000. g. The pension liability is understated by 40,000. Required: 1. Compute the amount of goodwill if Korbel agrees to pay 500,000 cash for Hamilton. 2. Next Level What are the reasons that the book value of Hamiltons net identifiable assets differ from their market value? 3. Prepare the journal entry to record the acquisition on the books of Korbel assuming Hamilton is liquidated. 4. If Korbel agrees to pay only 400,000 cash, how much goodwill exists? 5. If Korbel pays only 400,000 cash, prepare the journal entry to record the acquisition on its books, assuming Hamilton is liquidated.arrow_forward
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