Question

On January 2, Carrs Company came to an agreement to purchase Pleasantville by acquiring all of its outstanding shares for $575,000 in cash. On that date in time, the fair value of their inventory was $150,000, and the fair value of the equipment was $225,000. The book value is accurate as of January 1, and was equal to fair value. Cash Inventory Property, plant, and equipment Patent $ 175,000 Accounts Payable 157,000 Notes Payable 200,000 Mortgage Payable 25.000 Retained Earnings $ 557,000 $ 57,000 250,000 150,000 100.000 $ 557.000 Required: 1.) Compute the goodwill associated with the purchase of Pleasantville, 2.) Prepare the journal entry necessary at January 1, to record the acquisition of Pleasantville.

Answer 1

	1) Computation of goodwill
		Net identifiable assets aquired
			Fair values
		Cash	$175,000
		Inventory	$150,000
		Property, plant and equipment	$225,000
		Patent	$25,000
		Account payable	-$57,000
		Notes payable	-$250,000
		Mortgage payable	-$150,000
		Net identifiable assets	$118,000
		Consideration paid	$575,000
		Goodwill	$457,000
	2.) Journal entries in consolidated books
	Date	Account titles and explanation	Debit	Credit
	01-Jan	Cash	$175,000
		Inventory	$150,000
		Property, plant and equipment	$225,000
		Patent	$25,000
		Goodwill	$457,000
		Account payable		$57,000
		Notes payable		$250,000
		Mortgage payable		$150,000
		Cash(consideratin paid)		$575,000
		(Business aquired)
	Journal entry in Carrs parent only financial statement
		Investment in subsidiary	$575,000
		Cash		$575,000
		(investment in subsidiary)

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