Print by: GUILLERMINA LORENZO 334.D301.Fall 2017.Seda / C12 Exercise 12-11 Fred

ID: 2577725 • Letter: P

Question

Print by: GUILLERMINA LORENZO 334.D301.Fall 2017.Seda / C12 Exercise 12-11 Fred Moss, owner of Moss Interiors, is negotiating for the purchase of Ivanhoe Galleries. The balance sheet of Ivanhoe is given in an abbreviated form below. IVANHOE GALLERIES BALANCE SHEET AS OF DECEMBER 31, 2017 Liabilities and Stockholders' Equity Accounts payable Notes payable (long-term) Assets Cash Land $103,000 69,800 $50,200 304,300 354,500 Buildings (net) 199,800 Equipment (net) 174,800 Common stock Copyrights (net) 29,800 Retained earnings Total liabilities $200,500 22,200 222,700 Total assets $577.200 Total liabilities and stockholders' equity $577,200 Moss and Ivanhoe agree that: 1. Land is undervalued by $44,500. 2. Equipment is overvalued by $4,700. Ivanhoe agrees to sell the gallery to Moss for $381,700. Prepare the entry to record the purchase of Ivanhoe Galleries on Moss's books. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Question Attempts: Unlimited

Explanation / Answer

Journal Entry to record the purchase of Ivanhoe Galleries by Moss

Account title and explanation

Debit

Credit

Cash a/c Dr.

$103,000

Land a/c Dr. (69800 + 44500)

$114,300

Building a/c Dr.

$199,800

Equipment a/c Dr. (174800-4700)

$170,100

Copyrights a/c Dr.

$29,800

Goodwill a/c Dr.

$119,200

Accounts payable a/c Cr.

$50,200

Notes payables a/c Cr.

$304,300

Cash A/c Cr.

$381,700

a/c stand for Account

Dr. stand for Debit

Cr. Stands for Credit

Goodwill Calculation

Goodwill = Consideration paid - Net asset value

Net asset value = Fair market value of asset - Fair market value of liabilities

= 617000 - 354500

= 262500

Goodwill = 381700 - 262500

= $119200