Question

Recording Goodwill upon Acquisition

On January 1, 2020, the balance sheet of Naperville Company (a sole proprietorship) was as follows.

Assets		Liabilities
Accounts receivable (net of allowance)	$120,000	Current	$76,000
Inventory	180,000	Noncurrent	160,000	$236,000
Plant and equipment (net of depreciation)	400,000	Equity
Land	60,000	Owners’ equity		524,000
Total	$760,000	Total liabilities and owners’ equity		$760,000

On January 1, 2020, Chicago Corporation purchased all of the assets and assumed all of the liabilities listed on the above balance sheet for $580,000 cash. The assets, on date of purchase, were valued by Chicago Corporation as follows: accounts receivable (net), $100,000; inventory, $170,000; plant and equipment (net), $400,000; and land, $90,000. In addition, Chicago Corporation estimated purchased intangible assets of $4,000 for customer list and $16,000 for trade names (both previously unrecorded). The liabilities were valued at their carrying amounts.

Required

a. Compute the amount of goodwill included in the purchase price paid by Chicago Corporation.

$Answer

b. Provide the entry that Chicago Corporation should make to record the purchase of Naperville Company.

Account Name	Dr.	Cr.
Accounts Receivable (net)	Answer	Answer
Inventory	Answer	Answer
Plant and Equipment (net)	Answer	Answer
Land	Answer	Answer
Intangible Asset—Customer List	Answer	Answer
Intangible Asset—Trade names	Answer	Answer
Goodwill	Answer	Answer
Current Liabilities	Answer	Answer
Noncurrent Liabilities	Answer	Answer
Cash	Answer	Answer

c. What is the minimum amount of goodwill that Chicago Corporation can amortize at the end of 2020?

Answer 1

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