Reference no: EM13872241
Purpose: This exercise will review the procedure for determining the recorded value for purchased goodwill.
Sharon Gilkey, owner of Montana Designs, is negotiating with Chris Buffet for the purchase of Hospitality Galleries. The condensed balance sheet of Hospitality is given in abbreviated form below.
Hospitality Galleries Balance Sheet
As of December 31, 2013
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Hospitality Galleries Balance Sheet
As of December 31, 2013
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Assets
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Liabilities and Stockholders' Equity
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Cash
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$150,000
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Accounts payable
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$75,000
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Land
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100,000
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Long-term notes payable
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450,000
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Building (net)
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300,000
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Total liabilities
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525,000
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Equipment (net)
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275,000
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Common stock
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$300,000
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Copyright (net)
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40,000
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Retained earnings 40,000
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$ 340,000
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Total assets
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$865,000
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Total liabilities and stockholders' equity
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$865,000
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Sharon and Chris agree that:
1. The fair value of the land exceeds its book value by $70,000.
2. The fair value of the equipment is less than its book value by $15,000. Chris agrees to sell Hospitality Galleries for $530,000.
Instructions
(a) Prepare the entry to record the purchase of the gallery on Sharon's books.
(b) Prepare the entry to record the amortization of goodwill for 2014.