Question

Decca Publishing paid $230,000 to acquire Thrifty Nickel, a weekly advertising paper. At the time of the acquisition, Thrifty Nickel balance sheet reported total assets of $130,000 and liabilities of $70,000. The fair market value of Thrifty Nickels assets was $100,000. The fair market value of Thrifty Nickel liabilities was $70,000.

Required:
a. How much goodwill did Decca Publishing purchase as part of the acquisition of Thrift Nickel?
b. Journalize Decca Publishing's acquisition of Thrifty Nickel.

Answer 1

Part a

$200,000

Part b

Debit : Investment in subsidiary $230,000

Credit : Cash $230,000

Step-by-step explanation:

Goodwill is the excess of the Purchase Price over the Net Assets taken over at the acquisition date.

Assets and liabilities are taken over at their acquisition date Fair Values instead of Book Values so be sure to adjust any items shown at Book Value.

Net Assets = Assets at Fair Value - Liabilities at Fair Value

= $100,000 - $70,000

= $30,000

Goodwill = Purchase Price - Net Assets Taken over

= $230,000 - $30,000

= $200,000