Accounting for Goodwill and Equity Investment wirh solution

(Accounting for Goodwill)

Fred Moss, owner of Moss Interiors, is negotiating for the purchase of Zweifel Galleries. The balance sheet of Zweifel is given in an abbreviated form below.
ZWEIFEL GALLERIES
Balance Sheet as of December 31, 2014
Assets

Liabilities and Stockholders' Equity

Cash
$100,000
Accounts payable $ 50,000
Land
70,000
Notes payable (long-term) 300,000
Buildings (net)
200,000
Total liabilities 350,000
Equipment (net)
175,000
Common stock
$200,000

Copyrights (net)
30,000
Retained earnings
25,000
225,000
Total assets
$575,000
Total liabilities and stockholders' equity $575,000

Moss and Zweifel agree that:

1.
Land is undervalued by $30,000.

2.
Equipment is overvalued by $5,000.

Zweifel agrees to sell the gallery to Moss for $350,000.
Instructions
Prepare the entry to record the purchase of Zweifel Galleries on Moss's books.

Solution

Net assets of Zweifel as reported ($575,000 – $350,000)

$225,000
Adjustments to fair value

Increase in land value
30,000

Decrease in equipment value (5,000) 25,000
Net assets of Zweifel at fair value

250,000
Selling price

350,000
Amount of goodwill to be recorded

$100,000

The journal entry to record this transaction is as follows:

Cash
100,000

Land
100,000

Building
200,000

Equipment
170,000

Copyright
30,000

Goodwill
100,000

Accounts Payable

50,000 Long-term Notes Payable

300,000 Cash

350,000

E12-13.
(Accounting for Goodwill)

3
5

On July 1, 2014, Brigham Corporation purchased Young Company by paying $250,000 cash and issuing a $100,000 note payable to Steve Young. At July 1, 2014, the balance sheet of Young Company was as follows.
Cash
$ 50,000
Accounts payable
$200,000
Accounts receivable
90,000
Stockholders' equity
235,000
Inventory
100,000

$435,000
Land
40,000

Buildings (net)
75,000

Equipment (net)
70,000

Trademarks
10,000

$435,000

The recorded amounts all approximate current values except for land (fair value of $60,000),