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Horngren'S Financial And Managerial Accounting
Found in: Page 536

Short Answer

Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company,which had the following figures:

Book value of assets $ 700,000

Market value of assets 1,000,000

Market value of liabilities 510,000

Requirements

1. Journalize the entry to record Core’s purchase of Surety Wireless for $280,000 cashplus a $420,000 note payable.

2. What special asset does Core’s acquisition of Surety Wireless identify? How shouldCore Telecom account for this asset after acquiring Surety Wireless? Explain in detail

Goodwill is $210,000

See the step by step solution

Step by Step Solution

Step 1: Meaning of Intangible Asset

The assets that increase the value of the business organization even without physical existence are known as intangible assets. Goodwill and patents are some of the intangible assets.

Step2: Journal entry for purchase of business

Date

Particulars

Debit ($)

Credit ($)

Jan 1

Assets

1,000,000

Goodwill

210,000

Notes Payable

420,000

Liabilities

510,000

Cash

280,000

(To record the purchase of business)

Working note:

Step 3: Treatment of special asset

Core Telecom will identify goodwill on the acquisition of Surety wireless company. This goodwill arises because core has paid an amount of consideration that is more than the market value of the net assets of the Sheldon wireless.

Core Telecom will report goodwill of $210,000 on the balance sheet.

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