Northern Equipment Corporation purchased all the outstanding common stock of Pioneer Equipment Rental for $5,600,000 in cash. The book values and fair values of Pioneer’s assets and liabilities were: BOOK VALUE FAIR VALUE
Accounts receivable $750,000 $650,000
Buildings 4,100,000 4,800,000
Equipment 110,000 200,000
Accounts payable (750,000) (750,000)
$4,210,000 $4,900,000
Required:
1. Calculate the amount Northern Equipment should report for goodwill.
2. Record Northern Equipment's acquisition of Poineer Equipment Rental.

1. Goodwill is $ 700,000

2. Record of Northern Equipment's acquisition of Poineer Equipment Rental

Accounts receivable $650,000 (debit)

Buildings $4,800,000 (debit)

Equipment $200,000 (debit)

Goodwill $ 700,000 (debit)

Accounts payable $750,000 (credit)

Cash $5,600,000 (credit)

Explanation:

Acquisition of Pioneer Equipment Rental Assets and Liabilities is done at their fair values.

Goodwill is the excess of Purchase price over the Net Assets Acquired by the Acquirer ( Northern Equipment Corporation)

Journal to record acquisition and calculation of goodwill

Accounts receivable $650,000 (debit)

Buildings $4,800,000 (debit)

Equipment $200,000 (debit)

Goodwill $ 700,000 (debit)

Accounts payable $750,000 (credit)

Cash $5,600,000 (credit)

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