Answer: The answers are given below
Step-by-step explanation:
Here is the complete question:
Midland Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Midland purchased goodwill as part of the acquisition of Shipley Wireless Company, which had the following figures:
Book Value of assets $750,000
Market Value of assets $1,000,000
Market Value of Liabilities $530,000
Requirements:
1. Journalize the entry to record Midland's purchase of Shipley Wireless for $320,000 cash plus a $480,000 note payable.
2. What special asset does Midland's acquisition of Shipley Wireless identify? How should Midland Telecom account for this asset after acquiring Shipley Wireless?
Answer:
Goodwill is an intangible asset which takes place when when a buyer purchases a business that is already existing. The goodwill in the purchase of the company will be:
Goodwill = Cost of the acquisition - the market value of the assets less the liabilities.
Goodwill = ($320,000 + $480,000) - ($1,000,000 - $530,000)
= $800,000 - $470,000
= $330,000
1. The journal has been prepared and attached.
2. The special asset that Midland's acquisition of Shipley Wireless identify is the goodwill. The goodwill will be recorded on Midland Telecom books after the acquisition even though it is not amortized.
Midland Telecom will measure the current worth of the goodwill every year. Midland Telecom will record a loss when the value of the goodwill reduces and when there is a rise, there will be no record for entry.