Chapter 11, Problem 11.7P

Goodwill and Bargain Purchase Computations. The trial balance for the Dark Horse Company follows:

Description	Debit	Credit
Cash	$ 30,000
Inventory	100,000
Property, plant, and equipment - Net	370,000
Current liabilities		$ 50,000
Common stock - No oar		150,000
Retained earnings		300,000
Totals	$500,000	$500,000

Assume that MPL, Inc. offers to acquire Dark Horse at a purchase price of $650,000. A study of Dark Horse’s assets revealed that the inventory had a fair market value of $180,000 and the plant assets were undervalued by $50,000.

Required

1. a. Given this set of assumptions, calculate the amount of goodwill or bargain purchase gain to be recorded on the acquisition.
2. b. Assume new that MPL, Inc. offers to acquire Dark Horse at a purchase price of $250,000. Determine the amount of goodwill or bargain purchase gain.
3. c. Indicate how to account for goodwill and any gain from a bargain purchase in the financial statements.