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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Grand Champion Inc. purchased America’s Sweethearts Corporation on January 1, 2019. At the time, America’s Sweethearts had the following assets and liabilities (stated at fair value):

Chapter 12, Problem 9RE, Grand Champion Inc. purchased Americas Sweethearts Corporation on January 1, 2019. At the time,

Grand Champion paid $900,000 for America’s Sweethearts. Record the purchase by Grand Champion.

To determine

Prepare journal entries for the given transaction.

Explanation

Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited lives are not amortized.

Prepare journal entries for the given transaction as follows:

DateAccount Title and ExplanationPost Ref

Debit

($)

Credit ($)
Cash  62,000 
 Accounts Receivable 138,000 
 Inventory 185,000 
 Property, Plant, and Equipment 300,000 
 Patent 65,000 
 Goodwill (1) 675,000 
 Accounts Payable  200,000
 Notes Payable  325,000
 Cash  900,000

Table (1)

  • Cash is an asset account and it is increased. Therefore, debit cash account with $62,000.
  • Accounts Receivable is an asset account and it is increased. Therefore, debit accounts receivable account with $138,000.
  • Inventory is an asset account and it is increased. Therefore, debit inventory account with $185,000.
  • Property, Plant, and Equipment is an asset account and it is increased. Therefore, debit it with $300,000.
  • A patent is an asset account (intangible) and it is increased. Therefore, debit patents account with $65,000...

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