Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. (Note that "Not Affected" means that the event does not affect that element of the financial statements or the event causes an increase in that element that is offset by a decrease in the same element.)Increase = IDecrease = DNot Affected = NABaltimore Company acquired Chesapeake Company for $650,000 cash. Chesapeake's assets had been appraised at $660,000. At the time of sale, Chesapeake's accounting records showed total assets of $590,000, liabilities of $180,000 and stockholders' equity of $410,000. How would the purchase affect Baltimore's financial statements?AssetsLiabilitiesStk.

Question

EquityRevenuesExpensesNet IncomeStmt of Cash Flows???????

What will be an ideal response?

Answer 1

(I) (I) (NA) (NA) (NA) (NA) (D)
Goodwill = Acquisition price of $650,000 - Fair value of Chesapeake's net assets of $480,000 (or appraised value of assets of $660,000 - liabilities of $180,000) = $170,000
The purchase will decrease assets (cash) by $650,000, increase assets (various purchased assets) by $660,000, increase assets (goodwill) by $170,000, resulting in a net increase in assets of $180,000. It will also increase liabilities (various liabilities assumed) by $180,000. The cash paid of $650,000 will be reported as a cash outflow for investing activities on the statement of cash flows.