GB 112/212 MANAGERIAL ACC. W/ACCESS >C<
17th Edition
ISBN: 9781260218831
Author: Libby
Publisher: MCG CUSTOM
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Textbook Question
Chapter 8, Problem 8.9P
Computing
LO8-3, 8-6 The notes to a recent annual report from Weebok Corporation indicated that the company acquired another company, Sport Shoes, Inc.
Assume that Weebok acquired Sport Shoes on January 5 of the current year. Weebok acquired the name of the company and all of its assets for $750,000 cash. Weebok did not assume the liabilities. The transaction was closed on January 5 of the current year, at which time the balance sheet of Sport Shoes reflected the following book values and an independent appraiser estimated the following market values for the assets:
| Sport Shoes, Inc. | ||
| January 5 of the Current Year | Book Value | Market Value* |
| Accounts receivable (net) | $ 50,000 | $ 50,000 |
| Inventory | 385,000 | 350,000 |
| Fixed assets (net) | 156,000 | 208,000 |
| Other assets | 4,000 | 10,000 |
| Total assets | $595,000 | |
| Liabilities | $ 75,000 | |
| Stockholders’ equity | 520,000 | |
| Total liabilities and stockholders’ equity | $595,000 | |
*These values for the purchased assets were provided to Weebok by an independent appraiser.
Required:
- 1. Compute the amount of goodwill resulting from the purchase. (Hint: Assets are purchased at market value in conformity with the cost principle.)
- 2. Compute the adjustments that Weebok would make at the end of the current year (ending December 31) for the following:
- a. Depreciation of the fixed assets (straight line), assuming an estimated remaining useful life of 10 years and no residual value.
- b. Goodwill (an intangible asset with an indefinite life).
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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. 7,200,000
2. 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?
Chapter 8 Solutions
GB 112/212 MANAGERIAL ACC. W/ACCESS >C<
Ch. 8 - Define long-lived assets. Why are they considered...Ch. 8 - Prob. 2QCh. 8 - What are the classifications of long-lived assets?...Ch. 8 - Prob. 4QCh. 8 - Describe the relationship between the expense...Ch. 8 - Prob. 6QCh. 8 - Prob. 7QCh. 8 - In computing depreciation, three values must be...Ch. 8 - The estimated useful life and residual value of a...Ch. 8 - Prob. 10Q
Ch. 8 - Prob. 11QCh. 8 - Prob. 12QCh. 8 - Prob. 13QCh. 8 - Prob. 14QCh. 8 - Prob. 15QCh. 8 - Why is depreciation expense added to net income...Ch. 8 - Miga Company and Porter Company both bought a new...Ch. 8 - Leslie, Inc.. followed the practice of...Ch. 8 - Prob. 3MCQCh. 8 - Prob. 4MCQCh. 8 - Prob. 5MCQCh. 8 - Prob. 6MCQCh. 8 - Prob. 7MCQCh. 8 - Prob. 8MCQCh. 8 - Prob. 9MCQCh. 8 - (Chapter Supplement) Irish Industries purchased a...Ch. 8 - Prob. 8.1MECh. 8 - Prob. 8.2MECh. 8 - Prob. 8.3MECh. 8 - Prob. 8.4MECh. 8 - Computing Book Value (Double-Declining-Balance...Ch. 8 - Computing Book Value (Units-of-Production...Ch. 8 - Identifying Asset Impairment LO8-4 For each of the...Ch. 8 - Prob. 8.8MECh. 8 - Prob. 8.9MECh. 8 - Prob. 8.10MECh. 8 - Prob. 8.1ECh. 8 - Prob. 8.2ECh. 8 - Computing and Recording Cost and Depreciation of...Ch. 8 - Determining Financial Statement Effects of an...Ch. 8 - Determining Financial Statement Effects of an...Ch. 8 - Recording Depreciation and Repairs (Straight-Line...Ch. 8 - Prob. 8.7ECh. 8 - Prob. 8.8ECh. 8 - Computing Depreciation under Alternative Methods...Ch. 8 - Computing Depreciation under Alternative Methods...Ch. 8 - Prob. 8.11ECh. 8 - Prob. 8.12ECh. 8 - Prob. 8.13ECh. 8 - Computing Depreciation and Book Value for Two...Ch. 8 - Prob. 8.15ECh. 8 - Recording the Disposal of an Asset at Three...Ch. 8 - Prob. 8.17ECh. 8 - Prob. 8.18ECh. 8 - Prob. 8.19ECh. 8 - Prob. 8.20ECh. 8 - Prob. 8.21ECh. 8 - Prob. 8.22ECh. 8 - (Chapter Supplement) Recording a Change in...Ch. 8 - Prob. 8.24ECh. 8 - Prob. 8.25ECh. 8 - Explaining the Nature of a Long-Lived Asset and...Ch. 8 - Analyzing the Effects of Repairs, an Addition, and...Ch. 8 - Prob. 8.3PCh. 8 - Best Buy Co., Inc., headquartered in Richfield,...Ch. 8 - Evaluating the Effect of Alternative Depreciation...Ch. 8 - Recording and Interpreting the Disposal of Three...Ch. 8 - Prob. 8.7PCh. 8 - Prob. 8.8PCh. 8 - Computing Goodwill from the Purchase of a Business...Ch. 8 - Prob. 8.10PCh. 8 - Prob. 8.11PCh. 8 - Explaining the Nature of a Long-Lived Asset and...Ch. 8 - Prob. 8.2APCh. 8 - Computing the Acquisition Cost and Recording...Ch. 8 - Prob. 8.4APCh. 8 - Recording and Interpreting the Disposal of Three...Ch. 8 - Prob. 8.6APCh. 8 - Prob. 8.7APCh. 8 - Asset Acquisition, Depreciation, and Disposal Pool...Ch. 8 - Case A. Dr Pepper Snapple Croup, Inc., is a...Ch. 8 - Prob. 8.1BCOMPCh. 8 - Prob. 8.1CCOMPCh. 8 - Case D. Stewart Company reports the following...Ch. 8 - Case E. Matson Company purchased the following on...Ch. 8 - Prob. 8.1CPCh. 8 - Finding Financial Information LO8-1, 8-2, 8-6...Ch. 8 - Comparing Companies within an Industry Refer to...Ch. 8 - Prob. 8.4CPCh. 8 - Prob. 8.5CPCh. 8 - Prob. 8.6CPCh. 8 - Evaluating the Impact of Capitalized Interest on...
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