Assume Doltron Co. paid $18 million to purchase Bailey Industries. Assume further that Bailey Industries had the

Question:

Assume Doltron Co. paid $18 million to purchase Bailey Industries. Assume further that Bailey Industries had the following summarized data at the time of the Doltron Co. acquisition (amounts in millions):

Bailey Industries' current assets had a current market value of $17 million, long-term assets had a current market value of only $21 million, and liabilities had a market value of $24 million?
Requirements
1. Compute the cost of goodwill purchased by Doltron Co?
2. Journalize Doltron Co.'s purchase of Bailey Industries?
3. Explain how Doltron Co. will account for goodwill?

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...