On June 1, Gamma Company acquired all of the net assets of Pi Company for $140,000 cash. The two companies merged, with Gamma Company surviving. On the date of acquisition, Pi Company’s balance sheet included the following:

On the date of acquisition, the inventory had a fair value of $12,000 and the property and equipment had a fair value of $180,000. The fair value of the liabilities equaled their book value.

Required:
1. How much goodwill was involved in this merger? Show computations.
2. Give the journal entry that Gamma Company would make to record the merger on June 1.

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Balance Sheet at June 1 Inventory Property and equipment (net) Total assets Liabilities Common stock (par $1) Retained earnings Total liabilities and stockholders' equity Pi Company $ 13,000 165,000 $178,000 $ 82,000 65,000 31,000 $178,000