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Ernie Company Acquired Bert Company in January of Year 1

Question 27

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Ernie Company acquired Bert Company in January of Year 1.Bert's balance sheet included $700,000 of assets,$250,000 of liabilities and stockholders' equity of $450,000.Ernie agrees to assume the liabilities and pay $480,000 to acquire Bert.An independent appraiser assessed the fair value of Bert's assets to be $630,000.Indicate whether each of the following statements about this transaction is true or false.

Premises:
Recording this transaction will increase assets by $700,000 on Ernies books.
The goodwill will be amortized in the same manner as patents.
Recording this transaction will decrease liabilities by $250,000 on Ernies books.
Ernie will recognize $100,000 of goodwill in recording the acquisition of Bert.
It is impossible for Ernie to estimate the length of life for goodwill.
Responses:
False
True

Correct Answer:

Recording this transaction will increase assets by $700,000 on Ernies books.
The goodwill will be amortized in the same manner as patents.
Recording this transaction will decrease liabilities by $250,000 on Ernies books.
Ernie will recognize $100,000 of goodwill in recording the acquisition of Bert.
It is impossible for Ernie to estimate the length of life for goodwill.
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