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9 February, 15:57

The Clementine Company agreed to purchase the Orange Company for $650,000. At the date of purchase, Orange had current assets with a fair market value of $400,000, noncurrent assets (including no marketable securities) with a fair market value of $700,000, and liabilities of $500,000. In accounting for this transaction, Clementine should record current assets at $550,000. record goodwill of $50,000 to be reviewed annually for impairment. record noncurrent assets at $650,000. record a debit of $50,000 as a loss on the purchase.

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  1. 9 February, 16:04
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    Record goodwill of $50,000 to be reviewed annually for impairment.

    Explanation:

    Given that,

    Company purchased price = $650,000

    Fair value of current assets = $400,000

    Fair value of non-current assets = $700,000

    Liabilities = $500,000

    Total fair value of assets:

    = Current assets + Non current assets

    = $400,000 + $700,000

    = $1,100,000

    Net Assets (fair value):

    = Total assets - Total liabilities

    = $1,100,000 - $500,000

    = $600,000

    Therefore, the goodwill is recorded as follows:

    = Purchased price of orange company - Net Assets (fair value)

    = $650,000 - $600,000

    = $50,000
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