On January 1, 2017, Diversified Industries purchased Specialists Inc. for $1.8 million. The balance sheet of Specialists

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On January 1, 2017, Diversified Industries purchased Specialists Inc. for $1.8 million. The balance sheet of Specialists Inc. at the time of purchase follows:

Liabilities and Shareholders' Equity Liabilities Assets Current assets $650,000 $250,000 Shareholders' equity Total liab

The total FMV of the individual assets of Specialists is $1.35 million, and the liabilities are valued on the balance sheet at FMV.


REQUIRED:
a. How can the FMV of Specialists€™ assets exceed the value of the assets on the balance sheet?
b.
Why would Diversified pay more for Specialists than the FMV of the assets less the liabilities?
c. Provide the journal entry to record the purchase.
d. Prior to 2001, goodwill was amortized over a period of time not to exceed 40 years. Provide an argument to challenge this position.

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...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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