During 20X4, the Pencil Corp. entered into negotiations to buy Stilo Company, finally agreeing on...
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Accounting
During 20X4, the Pencil Corp. entered into negotiations to buy Stilo Company, finally agreeing on a final cash purchase price of $534,000. Pencil will acquire all assets and liabilities of Stilo effective 31 December 20X4, except for the existing cash balances of Stilo.
The 31 December 20X4 balance sheet prepared by Stilo is shown below in column (a), and the revised fair values added later by Pencil are shown in column (b).
| STILO COMPANY BALANCE SHEET | ||
| At 31 December 20X4 | (a) Book Values of Stilo Co. | (b) Fair Values assigned by Pencil Corp. |
| Assets |
|
|
| Cash | $ 50,000 | n/a |
| Accounts receivable (net) | 106,000 | $ 108,000 |
| Inventory | 320,000 | 180,000 |
| Property, plant, and equipment (net) | 618,000 | 570,000 |
| Land | 22,000 | 80,000 |
| Franchise (unamortized balance) | 38,000 | 42,000 |
| Total | $1,154,000 |
|
| Liabilities and shareholders equity |
|
|
| Current liabilities | $ 74,000 | 74,000 |
| Bonds payable | 400,000 | 400,000 |
| Shareholders equity | 680,000 | n/a |
| Total | $1,154,000 |
|
Required
- Compute the amount of goodwill purchased by Pencil.
- Give the entry for Pencil to record the purchase of Stilo.
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