Assume Caltron Co. paid $19 million to purchase Burton Industries. Assume further that Burton Industries had the

Question:

Assume Caltron Co. paid $19 million to purchase Burton Industries. Assume further that Burton Industries had the following summarized data at the time of the Caltron Co. acquisition (amounts in millions):

Burton Industries' current assets had a current market value of $15 million, long-term assets had a current market value of only $17 million, and liabilities had a market value of $29 million?
Requirements
1. Compute the cost of goodwill purchased by Caltron Co.
2. Journalize Caltron Co.'s purchase of Burton Industries.
3. Explain how Caltron Co. will account for goodwill.

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...