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During 20X4, the Pencil Corp. entered into negotiations to buy Stilo Company, finally...

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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 320,000180,000
Property, plant, and equipment (net)618,000570,000
Land 22,00080,000
Franchise (unamortized balance)38,00042,000
Total $1,154,000
Liabilities and shareholders equity
Current liabilities $ 74,00074,000
Bonds payable 400,000400,000
Shareholders equity 680,000 n/a
Total $1,154,000
Required (10 Marks):
1. Compute the amount of goodwill purchased by Pencil.
2. Give the entry for Pencil to record the purchase of Stilo.

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