Essay: Effect of Transactions on the Income Statement

Sample Essay

The purchase of machine would not have any effect on the income statement whereas the depreciation expense for each year will be included in the income statement which would cause the net income to decline each year. The proceeds from the sale of machinery will not have any effect on the net income while the loss on sale of machine will cause the net income to decline.

11-18

A.

Calculation of Goodwill

The amount of goodwill in an acquisition transaction is the difference of amount actually paid for acquisition and the value of assets arrived at after appraisal of the target company. The calculation is shown mathematically below.

Goodwill = Actual payment – net fair market value

Goodwill = 850,000 – 783,000

Goodwill = $67,000

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