The Edge Mfg. Company decided to expand further by purchasing the Bell Company.

Question

The Edge Mfg. Company decided to expand further by purchasing the Bell Company. The balance sheet of Bell Company as of December 31, 2012 was as follows:

Bell Company
Balance Sheet
December 31, 2012

Assets Equities
Cash $ 112,000 Accounts Payable $ 325,000
Receivables 460,000 Common Stock 700,000
Inventory 275,000 Retained Earnings 837,000
Plant Assets (Net) 1,025,000
Total Assets $1,862,500 Total Equities $1,962,500

An appraisal indicated that the fair market value of the inventory was $375,000 and that the fair market value of the plant assets was $1,225,000. The agreed purchase price was $2,350,000, and this amount was paid in cash to the previous owners of the Bell Company.

Instructions

Prepare the entry for the Edge Company to record the purchase

Explanation / Answer

FMV of all assets = 2,172,000 FMV of liabilities = 325,000 FMV of Net Assets (A - L) = 1,847,000 Purchase Price = 2,350,000 Goodwill = 503,000 Cash Dr. 112,000 Receivables Dr. 460,000 Inventory Dr. 375,000 Plant Assets Dr. 1,225,000 Goodwill Dr. 503,000 Accounts Payable Cr. 325,000 Cash Cr. 2,350,000

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