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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