Question

The Clementine Company agreed to purchase the Orange Company for $650,000. At the date of purchase, Orange had current assets with a fair market value of $400,000, noncurrent assets (including no marketable securities) with a fair market value of $700,000, and liabilities of $500,000. In accounting for this transaction, Clementine should record current assets at $550,000. record goodwill of $50,000 to be reviewed annually for impairment. record noncurrent assets at $650,000. record a debit of $50,000 as a loss on the purchase.

Answer 1

Answer:

Record goodwill of $50,000 to be reviewed annually for impairment.

Explanation:

Given that,

Company purchased price = $650,000

Fair value of current assets = $400,000

Fair value of non-current assets = $700,000

Liabilities = $500,000

Total fair value of assets:

= Current assets + Non current assets

= $400,000 + $700,000

= $1,100,000

Net Assets (fair value):

= Total assets - Total liabilities

= $1,100,000 - $500,000

= $600,000

Therefore, the goodwill is recorded as follows:

= Purchased price of orange company - Net Assets (fair value)

= $650,000 - $600,000

= $50,000