The Bugs Company Purchased the Daffy Company in January of 2013

question 30

Short Answer

The Bugs Company purchased the Daffy Company in January of 2013. Daffy's balance sheet included $350,000 of assets, $125,000 of liabilities and equity of $225,000. Bugs agrees to assume the liabilities and pay $240,000 to purchase Daffy. An independent appraiser assessed the fair market value of Daffy's assets to be $315,000. Indicate whether each of the following statements about this transaction is true or false. _____ a) Bugs' entry to record the transaction includes a debit to the assets for $350,000.
_____ b) Bugs' entry to record the transaction includes a credit to liabilities for $125,000.
_____ c) Bugs will recognize $50,000 of goodwill in recording the purchase of Daffy.
_____ d) It is impossible for Bugs to estimate the length of life for goodwill.
_____ e) The goodwill will be amortized in the same manner as patents.

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Definitions:

Sedative

A type of medication used to soothe or calm the nervous system, often prescribed to reduce anxiety or aid sleep.

Drowsy

A state of feeling sleepy or lethargic, often leading to a decreased level of alertness and responsiveness.

Barbiturates

A category of drugs that act as central nervous system depressants and are used as sedatives, hypnotics, or anesthetics.

Ethyl Alcohol

A colorless, volatile liquid, also known as ethanol, used in alcoholic beverages, as a solvent, and as a fuel.