Analyzing Goodwill and Reporting a Merger On January 4, 2011, D’Angelo Company acquired all of the net assets (assets and liabilities) of Barato Company for $124,000 cash. The two companies merged, with D’Angelo Company surviving. On the date of acquisition, Barato’s balance sheet included the following.
|
Balance Sheet at January 4, 2011 |
Barato |
|
Cash |
$23,000 |
|
Property and equipment (net) |
65,000 |
|
Total assets |
$88,000 |
|
Liabilities |
$12,000 |
|
Common stock (par $5) |
40,000 |
|
Retained earnings |
36,000 |
|
Total liabilities and stockholders’ equity |
$88,000 |
The property and equipment had a fair value of $72,000. Barato also owned an internally developed patent with a fair value of $4,000. The book values of the cash and liabilities were equal to their fair values.
Required:
1. How much goodwill was involved in this merger? Show computations.
2. Give the journal entry that D’Angelo would make to record the merger on January 4, 2011.