Requirement (1)
Goodwill is an intangible asset. It is defined as the excess of cost of an acquired company over the fair value of its net assets. Net assets are the difference between the total assets and the total liabilities. The value of the goodwill is the unique features of the company such as the location of the company, its efficient employees, and its reputation, which cannot be associated with any specific asset of the Company. It arises when one company purchases or acquires another company.
To calculate: The amount that Company FC should report for goodwill.
Requirement 2
Acquisition Cost:
Acquisition cost is the total cost of the asset incurred to obtain an asset. Acquisition cost is also called as historical cost or original cost.
To record: the acquisition made by Company FC
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
FINANCIAL ACCT LL W/ACCESS
- Kiwi Co. purchased another entity for P5,000,000 cash. The carrying amount and fair value were associated with this acquisition: Carrying Fair value amount Accounts receivable 2,000,000 2,000,000 Inventory 1,000,000 500,000 Government contract 1,000,000 Equipment Short-term loan payable 400,000 500,000 (2,000,000) 1,400,000 (2,000,000) Net assets 20,000,000 The fair value associated with the acquired entity's government contract is not based on any legal or contractual relationship. In addition, for obvious reason, there is no open market trading for an intangible of this sort. What is the goodwill arising from the acquisition?arrow_forwardColumbia recently acquired all of Mercury's net assets in a business acquisition. The cash purchase price was $22,000,000. Mercury's assests and liabilites had the following costs and appraised values: Current assets Land, building and equipment Current liabilites Mortgage payable How much goodwill will rewult from this transaction? Cost Basis $ 6,000,000 $ 14,000,000 Appraised Value $ 6,000,000 $23,000,000 $4,000,000 $4,000,000 $ 10,000,000 $10,000,000arrow_forward1. The Judi Company purchased another entity for P8,000,000 cash. A schedule of the fair value of the acquired entity's assets and liabilities is prepared as of the purchase date. Cash Accounts Receivable Inventory Property, plant and equipment 6,550,000 Accounts payable Notes Payable - Bank (long-term) 1,950,000 Net assets at fair value 100,000 850,000 1,300,000 4,300,000 950,000 1,000,000 4,600,000 Compute for the amount of goodwill using residual approach. a. P 1,450,000 b. 3,400,000 c. P 4,600,000 d. P 2,900,000arrow_forward
- = ces On March 31, 2024, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for $17,000,000 in cash. The book values and fair values of Barney's assets and liabilities were as follows: Current assets Property, plant, and equipment Other assets Current liabilities Long-term liabilities. Required: Calculate the amount paid for goodwill. Goodwill Book Value $ 6,000,000 11,000,000 1,000,000 4,000,000 6,000,000 Fair Value $ 7,500,000 14,000,000 1,500,000 4,000,000 5,500,000arrow_forward5. Fortune paid $570,000 cash to acquire 100 percent of Sorden Company's net assets on January 1, 2021. On that date, the following balance sheet data were reported by Sorden: Historical Fair Balance Sheet Item Cost Value Cash and Receivables $ 55,000 $ 50,000 Inventory 105,000 190,000 Land 60,000 100,000 Plant & Equipment 400,000 320,000 Less: Accumulated Depreciation (150,000) Goodwill 10,000 Total Assets 480,000 660,000 Accounts Payable S 50,000 $ 65,000 Common Stock 100,000 Additional Pain-in-Capital 60,000 Retained Earnings 270,000 Total Liabilities & Equity 480,000 Required: Prepare the journal entry Fortune would record at the time of the exchange.arrow_forwardLaker Grind Coffee House, Inc. purchased Brian's Bakery, Inc. for $400,000. The fair market value of tangible assets received from Brian's Bakery is listed below. Building $200,000 Equipment $150,000 Furniture $50,000 Inventory $30,000 What amount of goodwill will Laker Grind Coffee House record in conjunction with this transaction? A $0 B $130,000 C) $500,000 D) $530,000arrow_forward
- Topic: Intangible Assets (Goodwill) Guinevere Company is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of entity at current year end was P10,000,000. What is the amount of goodwill if: 1. Excess earnings are purchased for 5 years? A. 8,000,000 B. 4,000,000 C. 5,000,000 D. 4,500,000 2. Excess earnings are capitalized at 25%? A. 7,200,000 B. 6,400,000 C. 8,000,000 D. 3,600,000 3. Annual average earnings are purchased for 3 years? A. 10,800,000 B. 18,000,000 C. 4,800,000 D. 5,400,000 4. Annual average earnings are capitalized at 25%? A. 1,600,000 B. 3,600,000 C. 4,400,000 D. 2,000,000 5. Excess earnings are discounted at 12% for 5 years? (the PV of an ordinary annuity of 1 for 5 years at 12% is 3.60) A. 12,960,000 B. 10,800,000 C. 5,760,000 D. 7,200,000arrow_forwardPurple Corp. purchased all of the listed assets and liabilities of Sudden Corp. for $1,600,000. The following assets and liabilities were purchased:Book Value Fair MarketValueAccounts receivables $ 140,000 $ 140,000 Inventory 168,000 256,000 Property, plant, and equipment (net) 820,000 1,040,000 Patent 0 276,000 Liabilities (170,000 ) (170,000 )________________________________________ Required:1. What is the appropriate amount that would be recorded for goodwill? 2. Prepare the journal entry for the acquisition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)arrow_forwardBeck Company and Train Corporation exchange equipment. Relevant information are as follows: Beck Train Equipment 2,000,000 2,500,000 Accumulated depreciation 1,125,000 1,687,500 Fair value 750,000 1,000,000 Cash payment/(received) 250,000 (250,000) Beck Company also traded an old equipment with a dealer for a newer model. Relevant information are as follows:Old equipment:Cost P1,400,000Accumulated depreciation 1,000,000Fair value 350,000Trade in value 500,000New equipment:List price P2,000,000Trade in value of old equipment (500,000)Cash payment P1,500,000Required1. Prepare journal entries related to the exchange using the following assumptions:a) Fair value approachb) Trade in value approacharrow_forward
- Company X purchased Company Y for $4,000,000. The net assets of the company purchased were valued at $3,800,000. What asset will be on Company X's balance sheet for $200,000? Goodwill Amortization Not enough info Equipmentarrow_forward5 Company A acquired all of the outstanding common stock of Company B for $19,000,000 in cash. The book values and fair values of Company B's assets and liabilities were as follows: Current assets Property, plant, and equipment Other assets Current liabilities Long-term liabilities Required: Calculate the amount paid for goodwill. Goodwill Book Value $ 8,000,000 13,000,000 1,200,000 6,000,000 8,000,000 Fair Value $9,500,000 16,000,000 1,700,000 6,000,000 7,500,000arrow_forward9. RGW Industries purchased the net assets of SP Company for P1,300,000. A schedule of the net assets of SP Company, as recorded on SP Company's books at the time of the acquisition, is as follows: Assets Cash Receivable Inventory Land, buildings, and equipment (net) Total assets Liabilities Current liabilities Long-term debt P31,000 250,000 302,000 350,000 P933,000 Inventory Land, building and equipment Patent P90,000 185,000 P275,000 P658,000 Total liabilities Net assets (book value) The following schedule shows the differences between the recorded costs and market values of the assets of SP Company at the date of the acquisition: Cost P302,000 350,000 0 Purchased in-process research and development Existing workforce Totals P652,000 P275,000 Liabilities Determine the amount of goodwill to be recognized on the acquisition? a. P642,000 c. P74,000 b. P464,000 d. P164,000 0 0 Market P400,000 390,000 40,000 300,000 90,000 P1,220,000 P275,000arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education