South Company purchased North Company. South Company paid $550,000 cash and assumed all of North Company's liabilities. On the date of purchase, North's books showed tangible assets of $500,000, liabilities of $20,000, and equity of $480,000. An appraiser assessed the fair market value of the tangible assets at $530,000 on the acquisition date. Which of the following journal entries would be required to record the purchase of North Company on South Company's books?

Question

Business

Elizabeth

21 May, 21:49

South Company purchased North Company. South Company paid $550,000 cash and assumed all of North Company's liabilities. On the date of purchase, North's books showed tangible assets of $500,000, liabilities of $20,000, and equity of $480,000. An appraiser assessed the fair market value of the tangible assets at $530,000 on the acquisition date. Which of the following journal entries would be required to record the purchase of North Company on South Company's books?

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June West · Answer 1

The journal entry is shown below:

Assets A/c Dr $530,000

Goodwill A/c Dr $40,000

To Liabilities A/c $20,000

To Cash A/c $550,000

(Being the purchase is recorded and the remaining amount would be debited to the goodwill account)

The goodwill amount is computed below:

= Liabilities + cash paid - fair market value of the tangible assets

= $20,000 + $550,000 - $530,000

= $570,000 - $530,000

= $40,000