Indicate how each event affects the elements of the financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Increase = IDecrease = DNo Effect = NA(Note that "No Effect" means that the event does not effect that element of the financial statements or that the event causes an increase in that element that is offset by a decrease in that same element.) Baltimore 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

EquityRevenuesExpensesNetStmt. of ?IncomeCash 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.