ACCT201

FOURTH ASSIGNMENT
Q.1 ABC company investigates XYZ Companys assets and liabilities
and determined the following fair values.

Asset
Asset
Asset
Asset
Asset
Liability
Liability

Description
Cash
Accounts Receivable
inventory
Property, Plant &
Equipment
Patents
Accounts Payable
Other Liabilities

Fair Value
$ 25,000
$ 35,000
$ 122,000
$ 205,000
$ 18,000
$ 25,000
$ 30,000

XYZ Company decides to accept ABCs Company offer of $400,000.

REQUIRED.
What is the value of the goodwill, if any? Record a journal entry for
this transaction?
Goodwill:
Purchase Price
(-) Fair Value of Net Assets
Cash
Accounts Receivable
Inventory
Property Plant and Equipment
Patent
Accounts Payable
Other Liabilities
(=) Goodwill

400,00
0
25,000
35,000
122,000
205,000
18,000
(25,000)
(30,000)
350,00
0
50,000

Journal entry
Cash
Accounts Receivable
Inventory
Property Plant and Equipment
Patent
Goodwill
Accounts Payable
Other Liabilities
Cash

25,000
35,000
122,000
205,000
18,000
50,000
25,000
30,000
400,00
0

Q2.Arcadia HS, purchased equipment for $510,000 which was

estimated to have a useful life of 10 years with a residual value of
$10,000 at the end of that time. Depreciation has been recorded for
7 years on a straight-line basis. In 2010 (year 8), it is determined
that the total estimated life should be 15 years with a residual value
of $5,000 at the end of that time.
Questions:
1. What is the journal entry to correct the prior years depreciation?
No entry
2. Calculate the depreciation expense for 2010?
Solution:
First :
We have to compute the book value of the assets at the beginning of
change year.
Cost reseidual value $ 510,000$ 10,000
=
=$ 50,000
Useful life
10 years

1.

Depreciationexpenses=

2.

Accumulated depreciation=Depreiation expenses x Number of years

 $ 50,0000 x 7 years=$ 350,000

3.

Book Value=Cost Accuulated depreciation=$ 510,000$ 350,000=$ 160,000

Second :
We have to compute the revised depreciation
Revised depreciation=

Book ValueNew residual Value

New Useful lifePrior Period

Revised depreciation=

$ 160,000$ 5,000
=$ 19,375
15 Years7 years

Journal Entry:
Date
Dec 31,
2010

Accounts
Depreciation expenses
Accumulated depreciation

Dr.
19,375

Cr.
19,375