Question

An acquirer made the following entry to report an acquisition:

		Debit	Credit
Tangible assets		4,000
Customer lists		600
Goodwill		1,000
	Liabilities		2,000
	Cash		3,600

Six months after the acquisition, the customer lists are determined to be worthless.

Using a T-account template:

• Document the acquisition entry
• Prepare the entry to recognize that the customer lists are deemed worthless

Answer 1

JOURNAL ENTRIES IN THE BOOK OF ACQUIRER

DATE	PARTICULAR	DEBIT	CREDIT
DATE OF ACQUISITION	BUSINESS PURCHASE     A/C   Dr              TO           VENDORS A/C (purchase consideration paid by acquirer)	3600	3600
DATE OF ACQUISITION	TANGIBLE ASSETS    A/C Dr CUSTOMERS LIST    A/C Dr GOODWILL                A/C Dr                      TO LIABILITIES A/C                       TO BUSINESS PURCHASE     A/C (assets and liabilities taken over by acquirer)	4000 600 1000	2000 3600
DATE AFTER 6 MONTH OF ACQUISITION	BAD DEBTS EXPENSE          A/C Dr     TO CUSTOMERS LIST    A/C Dr (customers list account are worthless .so entire amount transferred to bad debts account)	600	600

Working note

CALCULATION OF BUSINESS PURCHASE

TANGIBLE ASSETS   (A) - 4000

CUSTOMERS LIST (B)   - 600

GOODWILL          ( c )   - 1000

TOTAL ASSETS (D)= (A+B+C) = 5600

LESS : LIABILITIES     (E)       -         2000

BUSINESS PURCHASE(D- E) = 3600

HERE IN THE CASE BUSINESS PURCHASE AMOUNT 3600 DIRECTLY GIVEN AS QUESTION THAT IS CASH ACCOUNT 3600