(Accounting for Goodwill) Fred Graf, owner of Graf Interiors, is negotiating for the purchase of Terrell Galleries. The balance sheet of Terrell is given in an abbreviated form below.
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TERRELL GALLERIES |
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|
Assets |
Liabilities and Stockholders’ Equity |
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|
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 |
|
Graf and Terrell agree that:
1. Land is undervalued by $50,000.
2. Equipment is overvalued by $5,000.
Terrell agrees to sell the gallery to Graf for $380,000.
Instructions
Prepare the entry to record the purchase of Terrell Galleries on Graf’s books.