Adam Hamilton, who recently won a major prize in a lottery, left his coaching job to invest
Question:
Adam Hamilton, who recently won a major prize in a lottery, left his coaching job to invest in a business of his own. He found what he believed was an ideal business for his background, Glenside Gym, which had been earning an average profit of $70000 per year over the last 4 years.
Adam has a copy of Glenside’s current balance sheet, which discloses the following:
GLENSIDE GYM Balance Sheet | |||||||||
CURRENT ASSETS Cash at bank Inventory | $ 20000 90000 | $110000 | |||||||
NON-CURRENT ASSETS Land Building Less: Accumulated depreciation | $170000 46000 | 50000 124000 | |||||||
Equipment Less: Accumulated depreciation | 136000 42000 | 94000 | 268000 | ||||||
TOTAL ASSETS | $378000 | ||||||||
LIABILITIES Accounts payable Mortgage payable | $ 20000 100000 | ||||||||
120000 | |||||||||
EQUITY Carl Ingford, Capital | 258000 | ||||||||
TOTAL LIABILITIES AND EQUITY | $378000 | ||||||||
Adam Hamilton and Channelle Eberhart (the owner of Glenside Gym) agree that the carrying amount of assets and liabilities are equal to their fair values with the exception of land, which has a fair value of $80000, and inventory, which has a fair value of $85000. Adam proposes to purchase the assets (except cash) and to assume the liabilities of Glenside Gym.
Required
A. Determine the fair value of the identifiable assets and liabilities of Glenside Gym.
B. Assuming that Glen is prepared to pay $310000 cash for Glenside Gym, determine the goodwill figure. Provide reasons Adam would be prepared to pay this amount.
C. Prepare general journal entries to acquire the business of Glenside Gym.
GoodwillGoodwill 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...
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett