Recording Goodwill
Aurora Corp. acquired Payette Company on December 31, 2008. The following information concerning Payette’s assets and liabilities was assembled on the acquisition date:
|
Per |
|
As Adjusted by |
|
Company’s Books |
|
Appraisal and Audit |
|
Assets |
|
|
|
Current assets |
$ 307,000 |
$ 340,000 |
|
Land, buildings, and equipment (net) |
179,200 |
260,000 |
|
|
$ 486,200 |
$ 600,000 |
|
Liabilities |
|
|
|
Current liabilities |
(25,000) |
(25,000) |
|
Long term liabilities |
(160,000) |
(160,000) |
|
Net assets |
$ 301,200 |
$ 415,000 |
Instructions:
1. Make the journal entry necessary for Aurora Corp. to record the purchase, assuming the purchase price was $1,500,000 in cash.
2. Why might Aurora be willing to pay such a high price for Payette?
3. Repeat (1), assuming the purchase price is $350,000.
4. Repeat (1), assuming the purchase price is $150,000.