Potters has acquired several other companies. Assume that Potters purchased Kittery for $ 6,000,000 cash. The book

Question:

Potters has acquired several other companies. Assume that Potters purchased Kittery for $ 6,000,000 cash. The book value of Kittery’s assets is $ 12,000,000 (market value, $ 15,000,000), and it has liabilities of $ 11,000,000 (market value, $ 11,000,000).

Requirements

1. Compute the cost of the goodwill purchased by Potters.

2. Record the purchase of Kittery by Potters.

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...