Answer:
1. $2,000,000
2. <u>Accounting Entry</u>
<em>Assets $17,000,000 (debit)</em>
<em>Goodwill $2,000,000 (debit)</em>
<em>Liabilities $13,000,000 (credit)</em>
<em>Investment in Kate $6,000,000 (credit)</em>
Explanation:
The Acquisition of Kate must be done at the fair value of Assets and Liabilities at the acquisition date instead of book values.
Goodwill is the excess of the Purchases Price over the Net Identifiable assets acquired.
<u>Calculation of Goodwill :</u>
Purchase Price $6,000,000
Less Net Identifiable Assets
Assets at Fair Value $17,000,000
Less Liabilities at Fair Value ($13,000,000) ($4,000,000)
Goodwill $2,000,000
<u>Accounting Entry</u>
Assets $17,000,000 (debit)
Goodwill $2,000,000 (debit)
Liabilities $13,000,000 (credit)
Investment in Kate $6,000,000 (credit)
