A Manufacturing Company decided to purchase Subco. The balance sheet of Subco as of October 31, 2011 was:
Subco Company
Balance Sheet
October 31, 2011
Assets Equities
Cash $ 200,000 Accounts payable $ 445,000
Receivables 470,000 Common shares 700,000
Inventory 280,000 Retained earnings 810,000
Plant assets-net 1,005,000
Total assets $1,955,000 Total equities $1,955,000
An appraisal showed that the fair market value of inventory was $300,000 and that the fair market value of the plant assets was $1,250,000. The fair market value of the receivables is equal to book value. The agreed purchase price was $2,200,000 million paid in cash.
Instructions
1) Determine the amount of goodwill (if any) for the purchase. Show calculations.
2) Prepare the journal entry to record the acquisition.