(Accounting for Goodwill) On July 1, 2012, Gissel Corporation purchased Mills Company by paying $250,000 cash and issuing a $150,000 note payable. At July 1, 2012, the balance sheet of Mills 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 |
||
|
Copyrights |
10,000 |
||
|
$435,000 |
The recorded amounts all approximate current values except for land (fair value of $80,000), inventory (fair value of $125,000), and copyrights (fair value of $15,000).
Instructions
(a) Prepare the July 1 entry for Gissel Corporation to record the purchase.
(b) Prepare the December 31 entry for Gissel Corporation to record amortization of intangibles. The copyright has an estimated useful life of 4 years with a residual value of $3,000.