Analyzing Goodwill and Reporting a Merger (AP12-6)
On January 4, 2011. D’Angelo Company acquired all of the net assets (assets and liabilities) of Barato Company for $124,000 cash. The two companies merged, with D’Angelo Company surviving. On the date of acquisition. Barato’s balance sheet included the following.
| Baralo |
Balance Sheet at January 4, 2011 | Company |
Cash | $23,000 |
Property and equipment (net) | 65,000 |
Total assets | $88,000 |
Liabilities | $ 12,000 |
Common stock (par $5 ) | 40,000 |
Retained earnings | 36,000 |
Total liabilities and stockholders’ equity | $88,000 |
The property and equipment had a fair value of $72,000. Barato also owned an internally developed patent with a fair value of $4,000. The book values of the cash and liabilities were equal to their fair values.
Required:
1. How much goodwill was involved in this merger? Show computations.
2. Give the journal entry that D’Angelo would make to record the merger on January 4, 2011.
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