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Chapter 19: Q9-26E (page 1073)

Measuring and recording goodwill Princeton has acquired several other companies. Assume that Princeton purchased Kelleher for \(9,000,000 cash. The book value of Kelleher’s assets is \)19,000,000 (market value, \(20,000,000), and it has liabilities of \)12,000,000 (market value, $12,000,000).

Requirements

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

2. Record the purchase of Kelleher by Princeton

Short Answer

Expert verified

Answer

The Value of Goodwill is $1,000,000.

Step by step solution

01

Meaning of Business Combination

The process under which the business unit acquires the net assets of any other business entity against the consideration decided upon is known as a business combination.

02

Calculate the cost of the Goodwill purchased by Princeton.

Particulars

Amount $

Amount $

Purchase price to acquire

$9, 000,000

Less:

Market value of asset

$20,000,000

Less : Market value of liabilities

(12, 000,000)

(8,000,000)

Goodwill

$1,000,000

03

Journal entry in the book of Kelleher by Princeton

Date

Particulars

Debit ($)

Credit ($)

Assets

20,000,000

Goodwill

1,000,000

To Liabilities

12,000,000

To Cash

9,000,000

( To record the acquisition of Kelleher)

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Most popular questions from this chapter

Rennie Plant Service completed a special landscaping job for Brenton Company. rennie uses ABC and has the following predetermined overhead allocation rates:

Activity Predetermined

Allocation Base Overhead Allocation Rate

Designing Number of designs \( 290 per design

Planting Number of plants \) 20 per plant

The Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.

Requirements

1. What is the total cost of the Brenton job?

What are quality improvement programs?

Question:Roxi, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Roxi’s senior managers expect the engineering work to reduceappraisal, internal failure, and external failure activities. The predicted reductionsin activities over the two-year life of the skateboards follow. Also shown are thepredetermined overhead allocation rates for each activity.


Activity

Predicted Reduction in Activity Units

Predetermined Overhead Allocation Rate per unit

Inspection of incoming raw materials

395

\( 44

Inspection of finished goods

395

26

Number of defective units discovered in-house

1,500

54

Number of defective units discovered by customers

275

73

Lost profits due to dissatisfied customers

100

103

Requirements

1. Calculate the predicted quality cost savings from the design engineering work.

2. Roxi spent \)106,000 on design engineering for the new skateboard. What is the net benefit of this “preventive” quality activity?

3. What major difficulty would Roxi’s managers have in implementing this costs-of quality approach? What alternative approach could they use to measure quality improvement?

Harcourt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:

Activity Estimated Estimated Quantity

Indirect Cost Allocation Base of Allocation Base

Materials handling \( 96,000 Number of kilos 24,000 kilos

Packaging 210,000 Number of machine hours 3,000 hours

Quality assurance 114,000 Number of samples 1,900 samples

Total indirect costs \) 420,000

Other production information includes the following:

Commercial Containers Travel Packs

Units produced 2,800 containers 51,000 packs

Weight in kilos 9,800 5,100

Machine hours 1,960 510

Number of samples 560 765

Requirements

3. Use the predetermined overhead allocation rates to compute the activity-based costs per unit of the commercial containers and the travel packs. Round to two decimal places. (Hint: First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.)

Why is JIT costing sometimes called backflush costing?
See all solutions

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