The Edge Mfg. Company decided to expand further by purchasing the Bell Company.
ID: 2387927 • Letter: T
Question
The Edge Mfg. Company decided to expand further by purchasing the Bell Company. The balance sheet of Bell Company as of December 31, 2012 was as follows:Bell Company
Balance Sheet
December 31, 2012
Assets Equities
Cash $ 112,000 Accounts Payable $ 325,000
Receivables 460,000 Common Stock 700,000
Inventory 275,000 Retained Earnings 837,000
Plant Assets (Net) 1,025,000
Total Assets $1,862,500 Total Equities $1,962,500
An appraisal indicated that the fair market value of the inventory was $375,000 and that the fair market value of the plant assets was $1,225,000. The agreed purchase price was $2,350,000, and this amount was paid in cash to the previous owners of the Bell Company.
Instructions
Prepare the entry for the Edge Company to record the purchase
Explanation / Answer
FMV of all assets = 2,172,000 FMV of liabilities = 325,000 FMV of Net Assets (A - L) = 1,847,000 Purchase Price = 2,350,000 Goodwill = 503,000 Cash Dr. 112,000 Receivables Dr. 460,000 Inventory Dr. 375,000 Plant Assets Dr. 1,225,000 Goodwill Dr. 503,000 Accounts Payable Cr. 325,000 Cash Cr. 2,350,000