Part 1 The Roasted Bean Ltd. operates franchised coffee shops. Assume that The Roasted Bean Ltd. purchased another company that carried these figures:
Book value of assets ......................................................... $3.6 million
Market value of assets ........................................................ 4.4 million
Liabilities ........................................................................... 2.2 million
Required
1. Make the general journal entry to record The Roasted Bean Ltd.'s purchase of the other company for $2.5 million cash on March 31.
2. How should The Roasted Bean Ltd. account for goodwill at year end and in the future? Explain in detail.
Part 2 Suppose Susan McMillan purchased a Roasted Bean franchise licence for $250,000 on January 1. In addition to the basic purchase price, McMillan also paid a lawyer $8,000 for assistance with the negotiations. McMillan believes the appropriate amortization period for the cost of the franchise licence is 10 years.
Required
1. Make general journal entries to record the franchise transactions, including straight-line amortization for one year at December 31.
2. Show the accounts and amounts that would be presented on the balance sheet.