Purchase of intangible assets in a business acquisition

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Reference no: EM13546288

Purchase of Intangible Assets in a Business Acquisition

Cossack Company purchased Village Enterprises. The following fair values were associated with the items acquired in this business acquisition:

 

Cost

Fair Value

Accounts receivable

$ 200,000

$ 200,000

Inventory

100,000

50,000

Government contacts

0

100,000

Equipment (net)

40,000

50,000

Short-term loan payable

(200,000)

(200,000)

Net assets

$ 140,000

$ 200,000

The fair value associated with Village Enterprises' government contacts is not based on any legal or contractual relationship. In addition, for obvious reasons, there is no open market trading for intangibles of this sort.

1. Make the journal entry necessary for Cossack Company to record the purchase if the purchase price is $900,000 cash.

2. Assume that the purchase price is $35,000 cash. Make the journal entry necessary to record the purchase.

Reference no: EM13546288

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