Question

Betta Group purchased Danio, Inc. for $960,000. The market value of Danio's assets and liabilities at the time of purchase were $1,300,000 and $360,000 respectively. The journal entry to record this will include:

A. debit to Investments for $1,300,000, credit to Cash $960,000 and credit to Gain on Investment $340,000.

B. debit to Asset accounts for $1,300,000, debit to Goodwill $20,000, credit to Liabilities $360,000 and credit to Cash $960,000.

C. debit to Investments for $960,000, credit to Cash $960,000.

D. debit to Asset accounts for $1,300,000, credit to Gain on Investments $340,000 and credit to Cash $960,000.

Answer 1

B. debit to Asset accounts for $1,300,000, debit to Goodwill $20,000, credit to Liabilities $360,000 and credit to Cash $960,000.

The correct journal entry for the acquisition of Danio, Inc. involves debiting the Asset accounts and Goodwill, and crediting the Liabilities and Cash accounts, reflecting the purchase cost and the fair value of the acquired net assets.

Step-by-step explanation:

The correct journal entry for Betta Group's purchase of Danio, Inc. for $960,000 when Danio's assets and liabilities at the time of purchase were $1,300,000 and $360,000 respectively, is to debit the Asset accounts for $1,300,000 to reflect the fair market value of the acquired assets, debit Goodwill for $20,000 to account for the excess purchase price over the fair value of the net assets, credit Liabilities for $360,000 to account for the assumed liabilities, and credit Cash for $960,000 which is the amount paid for the acquisition. No Gain on Investment account is credited because the purchase price is less than the fair value of net assets which results in recognition of Goodwill rather than a gain.

Therefore, the correct entry is Option B:

• Debit Asset accounts $1,300,000
• Debit Goodwill $20,000
• Credit Liabilities $360,000
• Credit Cash $960,000