Question

On January 1, 2019, Paul Company purchased Marino by acquiring all its outstanding shares for $300,000 cash. On that date, the fair value of the inventory was $10,000, and the fair value of the equipment was $230,000. In addition, the fair value of a previously unrecorded customer list was $25,000. For all other amounts, the book value of January 1, 2019, equaled fair value. Required: 1. Compute the goodwill associated with the purchase of Marino. 2. Prepare the journal entry necessary on January 1, 2019, to record the acquisition of Marino.

Answer 1

Answer:

Goodwill = $35,000

Journal

J1

Investment in Marino $300,000 (debit)

Cash $300,000 (credit)

J2

inventory $10,000 (debit)

equipment $230,000 (debit)

Trade Receivable $25,000 (debit)

Goodwill $35,000 (debit)

Investment in Marino $300,000 (credit)

Explanation:

Goodwill is the excess of Purchase price over fair value of Assets and Liabilities transferred in a Business combination agreement.

Goodwill = Purchase price - Net Assets Transferred (fair value)

               = $300,000 - ($10,000+$230,000+$25,000)

               = $35,000