A company (X) is considering a purchase of another company (Y) whose Assets and Liabilities (in no
Question:
A company (X) is considering a purchase of another company (Y) whose Assets and Liabilities (in no particular order) are as listed below (all in $ millions):
Inventory: $140; A/P: $50; Note Payable: $20; Cash: $120; Prepaid Expenses: $10; A/R: $30; Long Term Debt: $100; Unearned Revenue: $20;
A. By the actual accounting bookings for this acquisition, calculate the goodwill that would be created if Company (X) paid altogether $200 cash for Company (Y) ($100 immediately and $100 in 6 months).
B. While preparing next year's financial statements, it is determined that company (X) overpaid for company (Y) and that half of the Goodwill created should not be there. The accounting entry necessary to eliminate this portion of Goodwill from company (X)'s Balance Sheet.