Question

has acquired several other companies. Assume that Patton purchased Kate for $ 6 comma 000 comma 000 cash. The book value of Kate's assets is $ 15 comma 000 comma 000 ​(market value, $ 17 comma 000 comma 000 ​), and it has liabilities of $ 13 comma 000 comma 000 ​(market value, $ 13 comma 000 comma 000 ​). Requirements 1. Compute the cost of goodwill purchased by Patton . 2. Record the purchase of Kate by Patton .

Answer 1

Answer and Explanation:

1. The amount of goodwill is shown below:

= Purchase price - the market value of net assets

= $6,000,000 - ($17,000,000 + $13,000,000)

= $2,000,000

2. Now the journal entry for purchase is

Assets $17,000,000

Goodwill $2,000,000

      To Liabilities $13,000,000

      To Cash $6,000,000

(Being the purchase is recorded)

For recording this we debited the assets and goodwill as it increased the assets and credited the liabilities and cash as it also increased the liabilities and decreased the assets