Question

MacGregor Outdoor Sporting purchased the Snow Peaks Ski Resort on August 31, 2019 for the price...

MacGregor Outdoor Sporting purchased the Snow Peaks Ski Resort on August 31, 2019 for the price of $850 million. MacGregor issued a note payable to the previous owners of Snow Peaks for the purchase price.   Included in the purchase price are assets with a fair market value of $990 million and liabilities of $425 million.

1)      Calculate the value of goodwill at the time of acquisition? Show your work.                    

2)      Prepare MacGregor’s journal entry at August 31, 2019 for the purchase of Snow Peaks.   

3)      Suppose the valuation of the goodwill on May 31, 2020 is determined by a business valuator to be $200 million. Prepare a journal entry if necessary.                                                                      

   

Business   Accounting   
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Homework Answers

Answer #1

1)

Fair value of asset = $990 million

Fair value of liabilities = $425

Fair value of the company = Assets - Liabilities

= 990 - 425

= $565

Purchase price = $850

Goodwill = Purchase price - Fair value of company

= 850 - 565

= $ 285

2)

Journal entry of acquisition ( Amount in million).

Assets account debit. $990

Goodwill account debit. $565

To liabilities account credit. $425

To cash account credit. $850

3)

Goodwill = $200 million

Reduction in Goodwill = 565 - 200 = $365 million.

Journal entry ( Amount in million)

Goodwill impairment account debit $365

To Goodwill account credit. $365

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