This document provides the book and fair values of assets and liabilities for Gone Company as of February 1. It also states that OurCo paid $4 million in cash to acquire Gone with no stock issued. To record the acquisition, OurCo would debit Goodwill for $275,000 (the difference between the $4 million cash paid and Gone's $3.725 million net worth). OurCo would also credit Cash for $4 million (the amount paid) and credit Common Stock for $0 since no stock was issued. No loss would be recorded.
Questions 16 through 20 are based on the following information. The.pdf
1. Questions 16 through 20 are based on the following information. The book and fair values for
Gone Company as of February 1st were:
Book Value Fair Value
Inventory 525,000 425,000
Land 1,075,000 2,250,000
Buildings 1,500,000 1,300,000
Customer Relationships - 540,000
Accounts Payable (250,000) (250,000)
Common Stock (2,000,000)
Additional PIC (500,000)
Retained Earnings (1/1) (360,000)
Revenues (420,000)
Expenses 280,000
1) On 2/1 OurCo pays cash of $4,000,000 to acquire Gone. No stock is issued. In preparing
OurCo’s journal entry to record this acquisition, how much should be debited to Goodwill?
2) On 2/1 OurCo pays cash of $4,000,000 to acquire Gone. No stock is issued. In preparing
OurCo’s journal entry to record this acquisition, how much should be credited to Cash?
3) On 2/1 OurCo pays cash of $4,000,000 to acquire Gone. No stock is issued. In preparing
OurCo’s journal entry to record this acquisition, how much should be credited to Common
Stock?
4) On 2/1 OurCo pays cash of $4,000,000 to acquire Gone. No stock is issued. In preparing
OurCo’s journal entry to record this acquisition, how much should be debited to Loss?
Solution
Particulars Fair Value Inventory 425,000.00 Land 2,250,000.00
Building 1,300,000.00 Customer Relationships Total Assets 3,975,000.00
Accounts Payable 250,000.00 Net Worth 3,725,000.00 a) Goodwill =
4,000,000 - 3,725,000= 275,000 b) Cash = $4,000,000 c)Common Stock = Nil since no stock
is issued d) Loss =Nil since there is goodwill