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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