1 On January 2 2017 David Corporation Paid 1 200 000 For Buster Company In A Transac 2434369

1. On January 2, 2017, DavidCorporation paid $1,200,000 for Buster Company in a transactionproperly accounting for as an asset acquisition. The book valuesand fair values of Buster Company’s net assets on January 2, 2017were as follows:

BookValue               Fair Value

AccountReceivable                        400,000                  350,000

Inventory                                             50,000                    65,000

Plant andEquipment                       250,000                  450,000

AccountsPayable                             40,000                        50,000

MortgagePayable                              150,000                  150,000

                                                              510,000                   665,000

A. What will be the goodwill recorded from the abovetransaction? Show your calculation.

B. If David Corporation’s Accounts Receivable balanceimmediately prior to the acquisition was $500,000. What will DavidCorporation’s Accounts Receivable balance be immediately after theabove acquisition? Show your calculation.

2. To determine whether goodwill impairment exists, U.S. GAAPrequires a two-step process (complete the statements):

Step 1 – Compares F.V. (fair value) ofthe Reporting Unit to _____________________________.

Step 2 – If necessary, first comparesthe F.V. of the Reporting Unit to _____________________.

3. If goodwill impairment is determined to exist, the entry torecord the impairment is as follows:

                                                                                                           Debit     Credit

Goodwill                                                                                      $xxx

                 Impairment Loss -Goodwill                                           $xxx

A. True

B. False

Explain your answer:

 

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