Question

On March 31, 2020, Wolfson Corporation acquired all of the outstanding common stocks of Barney Corporation for $17,000,000 in cash. The book values and fair values of Barney’s assets and liabilities were as follows:

	Book Value	Fair Value
Current assets	$ 6,000,000	$ 7,500,000
Property, plant, and equipment	11,000,000	14,000,000
Other assets	1,000,000	1,500,000
Current liabilities	4,000,000	4,000,000
Long-term liabilities	6,000,000	5,500,000

Required:

1. Calculate the amount of goodwill (2 points).

Acquisition price =

Fair value of net assets acquired =

Goodwill =

2. Prepare Wolfson Corporation’s journal entry to record the acquisition (3 points).

	Debit	Credit

Answer 1

[1]

Acquisition price	$17,000,000
Fair Value of net assets acquired	$13,500,000
Goodwill	$3,500,000

	Fair Value of assets taken over
	Current Assets	$7,500,000
	PPE	$14,000,000
	Other assets	$1,500,000
A			$23,000,000
	Fair Value of liabilities taken over
	Current Liabilities	$4,000,000
	Long term liabilities	$5,500,000
B			$9,500,000
C = A- B	Fair Value of 'net assets' taken over		$13,500,000
D	Cash paid to acquire these 'net assets'		$17,000,000
E = D - C	Amount paid for goodwill		$3,500,000	Answer

· [2]

Accounts title	Debit	Credit
Current Assets	$7,500,000
PPE	$14,000,000
Other assets	$1,500,000
Goodwill	$3,500,000
Current Liabilities		$4,000,000
Long term liabilities		$5,500,000
Cash		$17,000,000