PPP Manufacturing Company decided to expand further by purchasing STU Company.

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Description

PPP Manufacturing Company decided to expand further by purchasing STU Company. The balance sheet of WWW Company as of December 31, 2015 was a follows:

STU Company

Balance Sheet

December 31 , 2015

Assets Liabilities and Equities
Cash $210,000 Accounts Payable $375,000
Receivables $550,000 Common Stock $800,000
Inventory $275,000 Retained Earnings $885,000
PP&E (net) $1,025,000
Total Assets $2,060,000 Total Liabilities and Equities $2,060,000


An appraisal, agreed to by the parties, indicated that fair value of the acquired inventory was $370,000 and that the fair value of the acquired PP&E assets was $1,325,000. The fair value of the acquired receivables is equal to the amount reported on the balance sheet. The agreed-upon purchase price was $2,275,000, and this amount was paid in cash to the previous owners of STU Company.

Instructions:

Determine the amount of goodwill (if any) implied in the purchase price of $2,275,000. Show your calculations. Using the attached T-account template, prepare the acquiring company’s journal entry to record the acquisition. Do not debit investments; rather debit and credit the assets acquired and the liabilities assumed.

No. 11
=
ASSETS
Non-current Assets
Current Assets

Property, Plant &
Equipment

Investments

LIABILITIES
Intangible
Assets/Other

Current Liabilities

Non-Current
Liabilities

+

EQUITY
Contributed
Capital

Earned Capital

Accumulated
OCI

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