Financial Accounting, Student Value Edition (5th Edition)
5th Edition
ISBN: 9780134728520
Author: Robert Kemp, Jeffrey Waybright
Publisher: PEARSON
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Chapter 8, Problem 42BE
1.
To determine
Compute the cost of
2.
To determine
Record the purchase of Incorporation L by Corporation R.
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Learning Objective 5: Measure and record goodwill) Munchies, Inc., dominates thesnack-food industry with its Salty Chip brand. Assume that Munchies purchased Sweet SnacksCompany for $5.4 million cash. The market value of Sweet Snacks’ assets is $10 million, andSweet Snacks has liabilities with a market value of $7.1 million.Requirements1. Compute the cost of the goodwill purchased by Munchies.2. Explain how Munchies will account for goodwill in future years.
(Learning Objective 8: Report cash flows for plant assets) Assume AlfonsoCorporation completed the following transactions:a. Sold a store building for $670,000. The building had cost Alfonso $1,600,000, and at thetime of the sale, its accumulated depreciation totaled $930,000.b. Lost a store building in a fire. The building cost $300,000 and had accumulateddepreciation of $220,000. The insurance proceeds received by Alfonso totaled $200,000.c. Renovated a store at a cost of $140,000 (cash).d. Purchased store fixtures for $110,000 (cash). The fixtures are expected to remain inservice for ten years and then be sold for $110,000. Alfonso uses the straight-linedepreciation method.For each transaction, show what Alfonso would report for investing activities on its statement ofcash flows. Show negative amounts in parentheses.
1. ANEMONE Company engaged your services to compute the goodwill in the purchase of another company which provided the following:
Net income
Net assets
2018
P 2,000,000
P 7,800,000
2019
2,500,000
8,700,000
2020
3,900,000
9,000,000
Goodwill is measured by capitalizing excess earnings at 25% with normal on average net assets at 20%
How much is the goodwill?
Chapter 8 Solutions
Financial Accounting, Student Value Edition (5th Edition)
Ch. 8 - Prob. 1DQCh. 8 - Prob. 2DQCh. 8 - Prob. 3DQCh. 8 - What is depreciation, and why is it used in...Ch. 8 - Prob. 5DQCh. 8 - Which depreciation method would be moot...Ch. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQ
Ch. 8 - Prob. 1SCCh. 8 - Prob. 2SCCh. 8 - How should a capital expenditure for a long-term...Ch. 8 - Which depreciation method usually produces the...Ch. 8 - Prob. 5SCCh. 8 - Prob. 6SCCh. 8 - Prob. 7SCCh. 8 - Prob. 8SCCh. 8 - Prob. 9SCCh. 8 - Prob. 10SCCh. 8 - Prob. 11SCCh. 8 - Prob. 12SCCh. 8 - Prob. 1SECh. 8 - Long-term asset terms (Learning Objective 1) 5-10...Ch. 8 - Prob. 3SECh. 8 - Lump-sum purchase (Learning Objective 2) 5-10 min....Ch. 8 - Errors in accounting for long-term assets...Ch. 8 - Concept of depreciation (Learning Objective 3)...Ch. 8 - Depreciation methods (Learning Objective 3) 10-15...Ch. 8 - Depreciation methods (Learning Objective 3) 10-15...Ch. 8 - Prob. 9SECh. 8 - Prob. 10SECh. 8 - Prob. 11SECh. 8 - Prob. 12SECh. 8 - Prob. 13SECh. 8 - Prob. 14SECh. 8 - Prob. 15SECh. 8 - Other long term assets (Learning Objective 8) 5-10...Ch. 8 - Prob. 17SECh. 8 - Prob. 18AECh. 8 - Prob. 19AECh. 8 - Prob. 20AECh. 8 - Prob. 21AECh. 8 - Depreciation methods (Learning Objective 3) 15-20...Ch. 8 - Prob. 23AECh. 8 - Prob. 24AECh. 8 - Prob. 25AECh. 8 - Prob. 26AECh. 8 - Prob. 27AECh. 8 - Prob. 28AECh. 8 - Prob. 29AECh. 8 - Prob. 30AECh. 8 - Prob. 31AECh. 8 - Prob. 32BECh. 8 - Prob. 33BECh. 8 - Prob. 34BECh. 8 - Prob. 35BECh. 8 - Prob. 36BECh. 8 - Prob. 37BECh. 8 - Prob. 38BECh. 8 - Prob. 39BECh. 8 - Prob. 40BECh. 8 - Prob. 41BECh. 8 - Prob. 42BECh. 8 - Prob. 43BECh. 8 - Prob. 44BECh. 8 - Prob. 45BECh. 8 - Long-term asset costs and partial-year...Ch. 8 - Journalizing long-term asset transactions...Ch. 8 - Prob. 48APCh. 8 - Prob. 49APCh. 8 - Prob. 50APCh. 8 - Prob. 51APCh. 8 - Prob. 52APCh. 8 - Prob. 53BPCh. 8 - Journalizing long-term asset transactions...Ch. 8 - Prob. 55BPCh. 8 - Prob. 56BPCh. 8 - Prob. 57BPCh. 8 - Prob. 58BPCh. 8 - Prob. 59BPCh. 8 - Prob. 1CECh. 8 - Prob. 1CPCh. 8 - Continuing Financial Statement Analysis Problem...Ch. 8 - Prob. 1EIACh. 8 - Prob. 2EIACh. 8 - Financial Analysis Purpose: To help familiarize...Ch. 8 - Prob. 1IACh. 8 - Prob. 1SBACh. 8 - Written Communication A client of yours notified...
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- sts Remaining Time: 29 minutes, 37 seconds. Question Completion Status: Moving to another question will save this response. Question 2 - Which of the following statements regarding goodwill is incorrect? An internally created goodwill should be capitalized. OB. It should be recorded when an entire business is purchased. OCIt is classified within non-current assets section. OD. It is equal cost of purchase a business minus fair value of identifiable net assets. Moving to another question will save this response.arrow_forwardE10-18 Making a lump-sum puurchase of assets Learning Objective 1 Lot 3 S108,750 Dearwood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows: Lot Appraised Value 1 $ 45,000 2 292,500 3 112,500 Dearwood paid $435,000 in cash. Record the purchase in the journal, identifying each lot's cost in a separate Land account. Round decimals to two places, and use the computed percentages throughout.arrow_forwardBuchanan Imports purchased McLaren Corporation for $5,000,000 cash when McLaren had net assets worth $4,500,000. A. What is the amount of goodwill in this transaction? B. What is Buchanans journal entry to record the purchase of McLaren? C. What journal entry should Buchanan write when the company internally generates additional goodwill in the year following the purchase of McLaren?arrow_forward
- Compute the amount of acquired Goodwill, including contingent earnings and bargain purchase Assume that you are charged with assigning fair values related to a $3,800,000 acquisition. You determine that the fair value of the net identifiable tangible assets is $1,850,000. You also conclude that the purchase included a Customer List with a fair value at $340,000. a. How much Goodwill will you record in this acquisition? $ 1,610,000 ✓ b. Continuing from part (a), now also assume that the purchase and sale agreement requires the payment of an additional $925,000 if the subsidiary achieves a certain level of earnings. You estimate the fair value of that contingent earnings clause in the agreement to be $220,000. How does this additional information affect your computation of Goodwill? The amount of Goodwill recorded is $ 1,830,000 c. This part of the exercise is independent parts (a) and (b). Assume that the purchase price is $3,800,000 and that fair value of the net identifiable tangible…arrow_forward13. Karen Company engaged your services to compute for the goodwill in the purchase of another entity which provided the following: Year Net Income Net Assets 2016 Php 1,000,000 Php 3,900,000 2017 Php 1,250,000 Php 4,350,000 2018 Php 1,950,000 Php 4,500,000 Goodwill is measured by capitalizing excess earnings at 25% with normal return on average net assets at 20%. How much is the purchase price?arrow_forwardGoodwill Sunshine, Corp purchased Cloudy Company for $400,000 cash when Cloudy had net assets worth $390,000. Required 1 Determine the amount of goodwill in this transaction. Goodwill 2 Record the entry for the purchase of Cloudy Company. Page 1 General Journal DR CR 3 Assume in the year following the purchase Sunshine during impairment testing determines that goodwill is worth $4,000. Record the necessary entry for the impairment loss. General Journal DR CRarrow_forward
- 24) Calculate goodwill at three year purchase of the average profits of last five years profits. The profits of the last five years were RO. 23,000, RO. 27,000, RO. 32,000, RO. 20,000 and RO. 18,000 Therefore, the amount of goodwill will be: a. RO 72,000 b. RO 144,000 c. RO 24,000 d. RO 36,000arrow_forwardMeasuring and recording goodwill Princeton has acquired several other companies. Assume that Princeton purchased Kelleher for $9,000,000 cash. The book value of Kelleher’s assets is $19,000,000 (market value, $20,000,000), and it has liabilities of $12,000,000 (market value, $12,000,000). Requirements Compute the cost of the good-will purchased by Princeton. Record the purchase of Kelleher by Princeton.arrow_forwardE9-20 Computing depreciation-three methods Learning Objective 2 1. Double-declining-balance, 12/31/19, Exp. $8,250 Crispy Fried Chicken bought equipment on January 2, 2018, for $33,000. The equipment was expected to remain in service for four years and to operate for 6,750 hours. At the end of the equipment's useful life, Crispy's estimates that its residual value will be $6,000. The equipment operated for 675 hours the first year, 2,025 hours the second year, 2,700 hours the third year, and 1,350 hours the fourth year. Requirements 1. Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods: straight-line, units-of-production, and double-declining-balance. Show your computations. Note: Three depreciation schedules must be prepared. 2. Which method tracks the wear and tear on the equipment most closely?arrow_forward
- Topic: Intangible Assets (Goodwill) Guinevere Company is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of entity at current year end was P10,000,000. What is the amount of goodwill if: 1. Excess earnings are purchased for 5 years? A. 8,000,000 B. 4,000,000 C. 5,000,000 D. 4,500,000 2. Excess earnings are capitalized at 25%? A. 7,200,000 B. 6,400,000 C. 8,000,000 D. 3,600,000 3. Annual average earnings are purchased for 3 years? A. 10,800,000 B. 18,000,000 C. 4,800,000 D. 5,400,000 4. Annual average earnings are capitalized at 25%? A. 1,600,000 B. 3,600,000 C. 4,400,000 D. 2,000,000 5. Excess earnings are discounted at 12% for 5 years? (the PV of an ordinary annuity of 1 for 5 years at 12% is 3.60) A. 12,960,000 B. 10,800,000 C. 5,760,000 D. 7,200,000arrow_forward8-3c. Acquisition of assets.Mix ‘Em Up engages in research to develop cures for famous diseases. Costs incurred during development of one such project are as shown below: Researchers’ wages $10,000 Materials used in research 5,000 Machinery used in research 700 Registration of product discovered 1,950 Attorney’s fees for registration 3,000 Record the journal entry for these items. Assume we credit Cash. 8-1. Acquisition of assets.Growth Company purchased a new machine for its manufacturing facility. Costs incurred in conjunction with this purchase included the following. Identify the costs that will capitalized in the asset.arrow_forwardDuring the past two years, through extensive advertising and improved customer relations, jEAN Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange may amortize. a.$26,667 b.$-0- c.$16,667 d.$33,333arrow_forward
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