Question
1. As of January 1, Year One, Company Z has no liabilities and only two tangible assets: a donut maker with a value of $300,000
1. As of January 1, Year One, Company Z has no liabilities and only two tangible assets: a donut maker with a value of $300,000 and a cookie machine with a value of $400,000. Each of these assets has a remaining useful life of ten years and no expected residual value. Company Z also holds patent worth $100,000 with a life span of 5 years. Company A offers $1 million to acquire all of the ownership of Company Z. The owners of Company Z hold out and manage to get $1.2 million in cash.
a. Make the journal entry to be recorded by Company A for this acquisition.
b. What depreciation/ amortization expense will Company A recognize in connection with these acquired assets at the end of Year One?
c. What is the appropriate handling of any goodwill resulting from this transaction?
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