Problem 7. Accounting for Goodwill (3.2.1 content area)

Mr. Smith, owner of Smith Carpets, is negotiating for the purchase of Bat's Toy Store (BTS). The following balance sheet of Bat's Toy Store is given in an abbreviated form as follows:

Bat's Toy Store

BALANCE SHEET

AS OF DECEMBER 31, 2023

Assets Liabilities and Stockholders' Equity Cash $200,000 Accounts payable $50,000 Land 70,000 Notes payable (long-term) 300,000 Buildings (net) 200,000 Total liabilities 350,000 Equipment (net) 175,000 Common stock $200,000 Copyrights (net) 30,000 Retained earnings 125,000 325,000 Total assets $675,000 Total liabilities and stockholders' equity $675,000

Smith Carpets and BTS agreed that the Land is undervalued by $60,000 and the Equipment is overvalued by $15,000. BTS has agreed to sell the toy store to Smith Carpets for $550,000.

Instructions:

7.1 Prepare the journal entry to record the purchase of the toy store on Smith Carpet's books.