Question

Plumber Corporation acquired all of Socket Corporation's voting shares on January 1, 20X2, for $470,000. At that time, Socket reported common stock outstanding of $80,000 and retained earnings of $130,000. The book values of Socket's assets and liabilities approximated fair values, except for land, which had a book value of $80,000 and a fair value of $100,000, and buildings, which had a book value of $220,000 and a fair value of $400,000. Land and buildings are the only noncurrent assets that Socket holds. Required: a. Compute the amount of goodwill at the date of acquisition Goodwill

b. Prepare the consolidating entry or entries required immediately following the acquisition to prepare a consolidated balance sheet. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Step-by-step explanation:

a. The computation of the goodwill amount at the date of acquisition is shown below:

= Common stock + retained earnings + excess value of land + excess value of building - cost of acquisition

= $80,000 + $130,000 + $20,000 + $180,000 - $470,000

= $60,000

where,

Excess value of land is

= $100,000 - $80,000

= $20,000

Excess value of building is

= $400,000 - $220,000

= $180,000

b. The journal entries are

Common Stock A/c Dr $80,000

Retained earnings A/c Dr $130,000

To Investment A/c $210,000

(Being the investment is recorded)

Land A/c Dr $20,000

Building A/c Dr $180,000

Goodwill A/c Dr $60,000

To Investment A/c $260,000

(Being the investment is recorded)