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Chapter 19: Q9-26E (page 1073)

Measuring and recording goodwill Princeton has acquired several other companies. Assume that Princeton purchased Kelleher for \(9,000,000 cash. The book value of Kelleher鈥檚 assets is \)19,000,000 (market value, \(20,000,000), and it has liabilities of \)12,000,000 (market value, $12,000,000).

Requirements

1. Compute the cost of the goodwill purchased by Princeton.

2. Record the purchase of Kelleher by Princeton

Short Answer

Expert verified

Answer

The Value of Goodwill is $1,000,000.

Step by step solution

01

Meaning of Business Combination

The process under which the business unit acquires the net assets of any other business entity against the consideration decided upon is known as a business combination.

02

Calculate the cost of the Goodwill purchased by Princeton.

Particulars

Amount $

Amount $

Purchase price to acquire

$9, 000,000

Less:

Market value of asset

$20,000,000

Less : Market value of liabilities

(12, 000,000)

(8,000,000)

Goodwill

$1,000,000

03

Journal entry in the book of Kelleher by Princeton

Date

Particulars

Debit ($)

Credit ($)

Assets

20,000,000

Goodwill

1,000,000

To Liabilities

12,000,000

To Cash

9,000,000

( To record the acquisition of Kelleher)

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