Question

IUL ILA J. E9-26 Measuring and recording goodwill Princeton has acquired several other companies. Assume that Princeton purchased Kelleher for $9,000,000 cash. The book value of Kelleher's assets is $19,000,000 (market value, $20,000,000), and it has liabilities of $12,000,000 (market value, $12,000,000) Requirements 1. Compute the cost of the goodwill purchased by Princeton. 2. Record the purchase of Kelleher by Princeton. 20 1 7 IM!

Answer 1

Solution 1:

Fair value of net assets acquired = $20,000,000 - $12,000,000 = $8,000,000

Purchase price = $9,000,000

Cost of goodwill purchased = $9,000,000 - $8,000,000 = $1,000,000

Solution 2:

Journal Entries - Princeton
Event	Particulars	Debit	Credit
1	Assets Dr	$20,000,000.00
	Goodwill Dr	$1,000,000.00
	To Liabilities		$12,000,000.00
	To Cash		$9,000,000.00
	(To record net assets acquired of Kelleher)