On september 1, 2020, pina corporation acquired kingbird enterprises for a cash payment of $690,000. at the time of purchase, kingbird’s balance sheet showed assets of $570,000, liabilities of $230,000, and owners’ equity of $340,000. the fair value of kingbird’s assets is estimated to be $880,000.

investment on Kingbird Enterprises 650,000 debit

Goodwill                                                40,000 debit

         cash                                                          690,000 credit

Explanation:

We are going to recognize a goodwill between the value of the firm at fair value and the acquisition cost:

acquisition cost:                                         690,000

market value:                                          

assets 880,000 - liabilities of 230,000 = (650,000)

goodwill:                                                       40,000

We enter the investment at the fair value of the net assets(assets - liabilities) as this is the value they got. Kingbird will recognize a gain in their books for the sale of theses assets above their book value. But; to us, the value of the assets is 880,000 not 570,000