1:15 nvestments in Equity Securities (10 points) Munchy Munch purchased Squishy

Question

1:15 nvestments in Equity Securities (10 points) Munchy Munch purchased Squishy Squish for $50,000 in cash on June 15, 2001. Squishy Squishes and Munchy Munch's financial statements the day before the purchase are as follows: Squishy Squish June 15, 2001 Munchy Munch June 15, 2001 Cash A/R(net) Inventory PP&E; (net) Tradename Goodwill Total Assets $2,000 Cash 3,500 A/R(net) 7,000 Inventory 20,000 PP&E; (net) 15,000 Copywrites 10,000 Goodwill $75,000 70,000 125,000 300,215 7,650 25,000 S602,775 S57,500 Total Assets A/P Note payable Owner's equity Total liabilities and owner's equity $4,000 A/P 38,000 Bonds payable 15.500 Owner's equity S39,800 500,000 $57,500 Total liabilities and owner's equity $602.775 The tradename is for the Squishy Squish name, which will be discontinued upon the merger. In addition, Squishy Squish has a patent that was developed internally (the legal costs were immaterial). The company spent a total of $3,000 on the development of that patent, but the fair market value is S5,000. The inventory is old and therefore is valued at only $2,000. Record the journal entryfies) for the purchase of Squishy Squish by Munchy Munch.

Explanation / Answer

In the books of munchy munch

Assets a/c dr 54500

Goodwill a/c dr 34500

To liabilities a/c 42000

To cash. 50000

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