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 SHEETAt 31 December 20X4 (a) Book Values of Stilo Co. (b) Fair Values assigned by Pencil Corp.Assets Cash $ 50,000 n/aAccounts receivable (net) 106,000 $ 108,000Inventory 320,000 180,000Property, plant, and equipment (net) 618,000 570,000Land 22,000 80,000Franchise (unamortized balance) 38,000 42,000Total $1,154,000 Liabilities and shareholders’ equity Current liabilities $ 74,000 74,000Bonds payable 400,000 400,000Shareholders’ equity 680,000 n/aTotal $1,154,000 Required1. Compute the amount of goodwill purchased by Pencil.2. Give the entry for Pencil to record the purchase of Stilo.
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
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
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
1. Compute the amount of
2. Give the entry for Pencil to record the purchase of Stilo.
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