During 20X4, the Pencil Corp. entered into negotiations to buy Stilo Company, finally agreeing on a final cash purchase price of $534,000. Pencil will acquire all assets and liabilities of Stilo effective 31 December 20X4, except for the existing cash balances of Stilo.

The 31 December 20X4 balance sheet prepared by Stilo is shown below in column (a), and the revised fair values added later by Pencil are shown in column (b).

Required:

1. Compute the amount of goodwill purchased by Pencil.

2. Give the entry for Pencil to record the purchase of Stilo.

Transcribed Image Text:

STILO COMPANY BALANCE SHEET (a) (b) Falr Values Book Values of assigned by Pencll Corp. Stilo Co. At 31 December 20ox4 Assets $ 50,000 Cash n/a Accounts receivable (net) 106,000 $ 108,000 Inventory 320,000 180,000 Property, plant, and equipment (net) 618,000 570,000 Land 22,000 80,000 Franchise (unamortized balance) 38,000 42,000 Total $1.154,000 Llabilitles and shareholders' equity $ 74,000 74,000 Current liabilities Bonds payable 400,000 400,000 Shareholders' equity 680,000 n/a Total $1.154.000