Exercise 8-20A Computing and recording goodwill LO 8-10

Arizona Corp. acquired the business Data Systems for $355,000 cash and assumed all liabilities at the date of purchase. Datas books showed tangible assets of $410,000, liabilities of $26,000, and stockholders equity of $384,000. An appraiser assessed the fair market value of the tangible assets at $345,000 at the date of acquisition. Arizona Corp.s financial condition just prior to the acquisition is shown in the following statements model:

Assets

=

Liab.

+

Equity

Rev.

Exp.

=

Net Inc.

Cash Flow

Cash

+

Tang. Assets

+

Goodwill

610,000

+

NA

+

NA

=

NA

+

610,000

NA

NA

=

NA

NA

Required: a. Compute the amount of goodwill acquired. b. Record the acquisition in a financial statements model like the preceding one. d. Record the acquisition in general journal format.

REQURIED A.

Compute the amount of goodwill acquired.

Goodwill

Req B.

Record the acquisition in a financial statements model like the preceding one. (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, NC for Net Change and NA to indicate the element is not affected by the event. Enter any decreases to account balances with a minus sign.)

ARIZONA CORP.

Statements Model

Assets

=

Liabilities

+

Equity

Revenue

Expenses

=

Net Income

Cash Flow

Cash

+

Tang. Assets

+

Goodwill

=

+

=

610,000

+

+

=

+

610,000

=

NA

Acquisition

+

+

=

+

=

req D.

Journal entry worksheet

• Record cash paid for acquisition of assets and liabilities.