Page 466 - Accounting Principles (A Business Perspective)

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ANY COMPANY
Partial Balance Sheet
2010 June 30
Property, plant, and equipment
Land $ 30,000
Buildings $ 75,000
Less: Accumulated depreciation 45,000 30,000
Equipment $ 9,000
Less: Accumulated depreciation 1,500 7,500
Total property, plant, and equipment $ 67,500
Natural resources:
Mineral deposits $300,000
Less: Accumulated depreciation 100,000
Total natural resources $200,00
0
Intangible assets:
Patents $ 10,000
Goodwill 20,000 $ 30,000
Total intangible assets
Exhibit 94: Partial balance sheet
Specific reasons for a company's goodwill include a good reputation, customer loyalty, superior product design,
unrecorded intangible assets (because they were developed internally), and superior human resources. Since these
positive factors are not individually quantifiable, when grouped together they constitute goodwill. The journal entry
to record the purchase is:
Accounts Receivable (+A) 95,000
Merchandise Inventory (+A) 100,000
Land (+A) 240,000
Buildings (+A) 275,000
Equipment(+A) 200,000
Patents (+A) 65,000
Goodwill(+A) 75,000
Cash (-A) 700,000
Mortgage Note Payable (+L) 350,000
To record the purchase of Martin Company's assets
and
assumption of mortgage note payable.
The intangible asset goodwill is not amortized. Goodwill is to be tested periodically for impairment. The amount
of any goodwill impairment loss is to be recognized in the income statement as a separate line before the subtotal
38
income from continuing operations (or similar caption). The goodwill account would be reduced by the same
amount. 39

Look at Exhibit 94, a partial balance sheet for ANY company. Unlike plant assets or natural resources, intangible
assets usually are a net amount in the balance sheet.

38 Discussion of testing for impairment is beyond the scope of this text. For more information on such testing see
SFAS No. 142.

39 SFAS No. 142. par. 18.

Accounting Principles: A Business Perspective 467 A Global Text