[ACCTGUY]

I have Unadjusted Trial Balance.

Unadjusted Trial Balance as at March 31 2012 (year end)
Goodwill account has DR 75000
Amortization Exp - goodwill DR 9375


Question is Goodwill was purchased APRIL 1 2010
Amortization is straight line $ 12500 per year booked quaterly ( No Accumulated Amort account Used)


How I will be doing adjustment..
I know I will Debit Goodwill by $ 3125
But what I will credit?

[pready]

Goodwill is not Amortized. You do not purchase Goodwill. It is acquired when you purchase a business for more than the book value of the business. The excess purchase price over the book value of the business is Goodwill.

Goodwill is an intangible asset and has a normal Debit balance.

[ACCTGUY]

Yes you are correct Pready.

I asked my teacher he said some companies to amortize Goodwill not for tax purposes but for reducing management bonuses because management made decision to pay good will.

In this case what will be my journal entry.

I have Unadjusted Trial Balance.

Unadjusted Trial Balance as at March 31 2012 (year end)
Goodwill account has DR 75000
Amortization Expense - goodwill DR 9375


Question is Goodwill was purchased APRIL 1 2010
Amortization is straight line $ 12500 per year booked quaterly ( No Accumulated Amort account Used)

[pready]

Debit Amortization Expense for 3125
Credit Goodwill for 3125

[ACCTGUY]

Unadjusted Trial Balance as at March 31, 2012 (year end)

Account Dr Cr
Cash 55,000
Accounts Receivable 250,000
Allowance for doubtful accounts 15,000
Inventory 300,000
Prepaid insurance 7,000
Investment bonds 80,000
Land 160,000
Building 500,000
Acc. Amortization - building 43,750
Equipment 375,000
Acc. Amortization - equipment 65,625
Goodwill 75,000
Accounts Payable 15,625
Bonds Payable 900,000
Common shares 600,000
Retained earnings 113,025
Sales 1,700,000
Warranty Revenue 21,600
Interest income 4,800
Advertising Expense 30,000
Operating supplies expense 12,000
Purchases 780,000
Purchases returns and discounts 6,200
Office expense general 36,000
Salaries expense 725,000
Interest expense 5,000
Interest expense - bonds 39,375
Insurance Expense 0
Amortization expense - building 18,750
Amortization expense - goodwill 9,375
Amortization expense - equipment28,125
3,485,625 3,485,625


Above I have unadjusted trial bal.

I have to prepare adjusting entries at year end March 31 2012

1.Buildings were purchased April 1 2010
Buildings amortized 5% (annual) straight line booked quaterly

March 31 2012 Amortization expense - building 6250
Accumulated Amortization - building 6250



2.Equipment was purchased April 1 2010
Equipment is amortized 10% annual straight line booked quaterly

March 31 2012 Amortization expense - equipment 9375
Accumulated Amortization - equipment 9375

3.Goodwill was purchased April 1 2010
Amortization is straight line $ 12500 per year booked quaterly ( No accumulated amort account used)

March 31 2012 Amortization expense - goodwill 3125
Goodwill 3125

4. Prepaid insurance includes two policies
Liability policy paid $ 2400 Oct 1 2011 for 12 months
Special policy paid $ 3600 April 1 2011 for 3 years

March 31 2012 Insurance expense 2400
Prepaid insurance 2400

5. Investment pays 12% (annual) semiannually on Jan 31st and July 31st
Investment purchased Oct 1 2011

No adjustment because interest is total $ 4800 and interest income account has already $ 4800

6. Bonds payable requires interest payments on May 15 and OCT 15
Bonds issued Oct 1st 2008 at par with interest of 7% annual

March 31 2012 Interest expense - bonds 23625
Accrued interest payable 23625

7.Customer owing $ 6000 declared bankruptcy March 30 2012
Estimate of uncollectible accounts is 3% of accounts receivable

March 31 2012 Allowance for doubtful account 6000
Accounts receivable 6000
Bad debt expense 7320
Allowance for doubtful account 7320

8. Company received warranty payments of $ 21600 during year
Company earned $ 13000 of these contracts.

March 31 2012 Warranty revenue 13000
Earned warranty revenue 13000

9. Company prepaid 3 months of advertising with ad agency ABC
$ 2000 per month

March 31 2012 Prepaid advertising 6000
Cash 6000

10. Physial inventory was counted and valued at $ 350,000 at March 31st 2012

March 31 2012 Opening Inventory 300000
Inventory 300000
Inventory 350000
Ending inventory 350000
11. Income tax is 30% of net income

Don't have to do any journal entry.