Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 9-9

(b) Tom Benyon would record a credit to Cash for $240,000, debits to individual asset accounts for the inventory, plant assets, identifiable intangible assets and other assets acquired for their fair market values, credits to liability accounts (at market value) for any liabilities assumed, and a debit to Goodwill for $40,000.

Goodwill is not to be amortized (written off) because it is considered to have an indefinite life, but goodwill must be written down if its value is determined to have declined (been permanently impaired). Goodwill appears on the balance sheet under Intangible Assets.

ILLUSTRATION 9-2 SUMMARY OF REQUIREMENTS FOR RECORDING GAINS AND LOSSES ON EXCHANGES OF PLANT ASSETS (When the Exchange has Commercial Substance) (L.O. 8)

1. Eliminate the book value of the asset given up.
2. Record the cost of the asset acquired. The cost is equal to the fair value of the asset given up plus the cash (if any) given in the exchange or minus any cash received in the exchange. (This should equal the fair value of the asset received in the exchange.)
3. Recognize the gain or loss on disposal. The total gain or loss experienced on the transaction is equal to the difference ...