On January 1, 2020, the balance sheet of Naperville Company (a sole proprietorship) was as follows. Assets Liabilities
Accounts receivable (net of allowance)$120,000Current$76,000
Inventory180,000Noncurrent160,000$2 36,000
Plant and equipment (net of depreciation)400,000Equity
Land60,000Owners’ equity 524,000
Total$760,000Total liabilities and owners’ equity $760,000
On January 1, 2020, Chicago Corporation purchased all of the assets and assumed all of the liabilities listed on the above balance sheet for $580,000 cash. The assets, on date of purchase, were valued by Chicago Corporation as follows: accounts receivable (net), $100,000; inventory, $170,000; plant and equipment (net), $400,000; and land, $90,000. In addition, Chicago Corporation estimated purchased intangible assets of $4,000 for customer list and $16,000 for trade names (both previously unrecorded). The liabilities were valued at their carrying amounts.

Required

a. Compute the amount of goodwill included in the purchase price paid by Chicago Corporation.

b. Provide the entry that Chicago Corporation should make to record the purchase of Naperville Company.

Account NameDr. Cr.
Accounts Receivable (net)
Inventory
Plant and Equipment (net)
Land
Intangible Asset—Customer List
Intangible Asset—Trade names
Goodwill
Current Liabilities
Noncurrent Liabilities
Cash
c. What is the minimum amount of goodwill that Chicago Corporation can amortize at the end of 2020?

Explanation:

From the information povided:

(a) To compute the amount of goodwill paid by Chicago Corporation

Particulars                                            Amount ($)

Accounts Receivable                           100000

Inventory                                               170000

Plant & Equipment                               400000

Land                                                        90000

Customer List                                            4000

Trade Names                                           16000

     NET ASSETS  (A)                             780000

Current liabilities                                     76000

Non-current liabilities                            160000

      NET LIABILITIES (B)                         236000

∴

PURCHASE  CONSIDERATION (A -B)   544000

Less:  Cash Paid                                      580000

          GODWILL                                        36000

b)

In the books of Chicago Corporation, the Journal Entry to record the purchase of Naperville Company.

Account Name                                       Dr.                      Cr.

Accounts Receivable A/C                  100000

Inventory A/C                                       170000

Plant Equipment  A/C                          400000

Land A/C                                                 90000

Customer List A/C                                    4000

Trade Names A/C                                   16000

Goodwill A/C                                           36000

Current liabilities A/C                                                       76000

Non-Current Liabilities A/C                                             160000

Cash A/C                                                                          580000

c)

The minimum required amount of goodwill that Chicago can amortize by the end of 2020 is $3600.This is because the amortization can take place for a period of 10 years.

c

explanation: