On January 1, 2017, Diversified Industries purchased Specialists Inc. for $1.8 million. The balance sheet of Specialists Inc. at the time of purchase follows:

The total FMV of the individual assets of Specialists is $1.35 million, and the liabilities are valued on the balance sheet at FMV.

REQUIRED:
a. How can the FMV of Specialists€™ assets exceed the value of the assets on the balance sheet?
b. Why would Diversified pay more for Specialists than the FMV of the assets less the liabilities?
c. Provide the journal entry to record the purchase.
d. Prior to 2001, goodwill was amortized over a period of time not to exceed 40 years. Provide an argument to challenge this position.

Transcribed Image Text:

Liabilities and Shareholders' Equity Liabilities Assets Current assets $650,000 $250,000 Shareholders' equity Total liabilities and shareholders' equity 730,000 Long-term assets 330,000 Total assets $980,000 $980,000