Advanced Financial Accounting 12th Edition by Theodore Christensen solution manual

 

Buildings and Equipment
530,000 
   Capital
160,000

Less: Accumulated
 
Retained Earnings
225,000

   Depreciation
(190,000)
 
 

Goodwill
    38,000 
 
               

 
$995,000 
 
$995,000

 
 
c. Journal entry to record acquisition of Sink Company stock:
 
 
Investment in Sink Company Common Stock
178,000
 

 
     Cash
 
178,000

 
Computation of goodwill
 
 
Fair value of consideration given
$178,000

 
Fair value of net assets acquired
    ($20,000 + $35,000 + $50,000 + $60,000
    + $150,000 - $55,000 -$120,000)
 (140,000)

 
Goodwill
$ 38,000 

P1-31  Bargain Purchase
 
Journal entries to record acquisition of Sark Corporation net assets:
 
 
Merger Expense
5,000
 

 
     Cash
 
5,000

 
 
 
 

 
Cash and Receivables
50,000
 

 
Inventory
150,000
 

 
Buildings and Equipment (net)
300,000
 

 
Patent
200,000
 

 
     Accounts Payable
 
30,000

 
     Cash
 
625,000

 
     Gain on Bargain Purchase of Sark Corporation
 
45,000

 
 
    Computation of gain
 
 
Fair value of consideration given
$625,000 

 
Fair value of net assets acquired
($700,000 - $30,000)
 (670,000)

 
Gain on bargain purchase
$  45,000 

 
P1-32  Computation of Account Balances
    
a.
Acquisition price of reporting unit
($7.60 x 100,000)
$760,000 
 

 
Fair value of net assets at acquisition
($810,000 - $190,000)
(620,000)
 

 
Goodwill at acquisition
$140,000 
 

 
 
b.
Maximum carrying value of reporting unit’s assets:
 

 
Carrying value of assets at year-end
$   X 

 
Less: Carrying value of liabilities at year-end (given)
     (70,000)

 
Carrying value of net assets at year-end
$   X - $70,000 

 
Less: Fair value of the reporting unit’s net assets
   $ (930,000) 

 
Maximum carrying value of assets
$0 
 
X - $70,00 = $930,000
X = $1,000,000

 
 
 
P1-33  Goodwill Assigned to Multiple Reporting Units
 
 
a.
A goodwill impairment of $95,000 ($20,000 + $50,000 + $25,000) must be reported in the current period for Prover Company:
 

 
Computation of goodwill impairment:
 
 
 

 
Reporting unit A
 
 

 
  Carrying value of reporting unit
 
$420,000 

 
  Less: Fair value of reporting unit
 
 (400,000)

 
  Goodwill impairment at year-end
 
$  20,000 

 
 
Reporting unit B
 
 

 
  Carrying value of reporting unit
 
$500,000 

 
  Less: Fair value of reporting unit
 
 (440,000)

 
  Goodwill impairment at year-end
 
$  60,000* 

 
 
 
 

* Limited to the amount of goodwill on the reporting unit’s books ($50,000).

 
 
Reporting unit C
 
 

 
  Carrying value of reporting unit
 
$290,000 

 
  Less: Fair value of reporting unit
 
 (265,000)

 
  Goodwill impairment at year-end
 
$  25,000