Part 1. The Coca-Cola Company's (CCC) balance sheet reports the asset Goodwill. Assume that CCC purchased an asset to be included in Goodwill as part of the acquisition of another company, which carried these figures (thousands of dollars):
Carrying amount of long-term assets ............................................................. $34,550
Fair value of assets ......................................................................................... 49,000
Liabilities ....................................................................................................... 4,500
Requirements
1. Explain the terms carrying amount of assets , fair value of assets , and goodwill. On what would you base the purchase price of the acquisition?
2. Make the journal entry to record CCC's purchase of the other company for $50,000 cash.
Part 2. Joshua Thomas has written a new dance song which Luv Sound Inc. would like to record. Joshua is negotiating the rights to the new song. It is estimated that Luv Sound will sell about 500,000 recordings either on CD, to radio station airings, or to iPod sales. Joshua would like to receive $2,000,000 for the copyright to this song.
Requirements
1. As the CFO of Luv Sound, decide whether $2,000,000 is an appropriate amount to pay for the copyright for Joshua Thomas's song.
2. If you chose to purchase the copyright, show how you would record the transaction.
3. What would be the accumulated amortization after 300,000 copies of the song had been sold by Luv Sound Inc.?