Analyzing Goodwill and Reporting a Merger (P12-10) AP12-6
On June 1, 2011, Gamma Company acquired all of the net assets of Pi Company for $140,000 cash. The two companies merged, with Gamma Company surviving. On the date of acquisition. Pi Company’s balance sheet included the following:
Balance Sheet at June 1, 2011 | Pi Company |
Inventory | $ 13,000 |
Property and equipment (net) | 165,000 |
Total assets | $178,000 |
Liabilities | $ 82,000 |
Common stock (par SI) | 65,000 |
Retained earnings | 31,000 |
Total liabilities and stockholders' equity | $178,000 |
On the date of acquisition, the inventory had a fair value of $12,000 and the property and equipment had a fair value of $180,000. The fair value of the liabilities equaled their book value.
Required:
1. How much goodwill was involved in this merger? Show computations.
2. Give the journal entry that Gamma Company would make to record the merger on June 1, 2011.
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