Problem

Analyzing Goodwill and Reporting a Merger (P12-10) AP12-6On June 1, 2011, Gamma Company ac...

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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