Question

Purple 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 Market Value
Accounts 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.)

Answer 1

• [1]

A	Cash paid for purchase of net assets		$1,600,000
	FMV of Assets:
	Account receivBles	$140,000
	Inventory	$256,000
	PPE	$1,040,000
	Patents	$276,000
B			$1,712,000
	FMV of Liabilities:
C	Liabilites		$170,000
D = B - C	FMV of net assets taken over		$1,542,000
E = A - D	Amount of Goodwill		$58,000	Answer

• [2]

Accounts title	Debit	Credit
Account receivBles	$140,000
Inventory	$256,000
PPE	$1,040,000
Patents	$276,000
Goodwill	$58,000
Liabilities		$170,000
Cash		$1,600,000