1. Prepare a presentation showing in good form the calculation of Goodwill in this transaction. 2. Explain the rational for your calculations.
The board of Directors of Pastrana, Inc. is negotiating the purchase of Burgos’ Galleries. The balance sheet @ 12/31/2009 of Burgos’ is presented below:
Assets Liabilities & Stockholder’s Equity
Cash $ 70,000 Notes Payable $ 50,000
Land $ 100,000 Account Payable $ 300,000
Equipment $ 375,000 Total Liabilities $ 350,000
Intangible Assets $ 30,000 Common Stocks $ 200,000
________ Retained Earnings $ 25,000 $ 225,000
Total Assets $ 575,000 Total Liabilities & Stk’s Ety $ 575,000
Additional Information:
1. Land is undervalued by $50,000.
2. Equipment is overvalued by $ 5,000. 3. Burgos’ agrees to sell the business to Pastrana Co. for $380,000.
Required:
1. Prepare a presentation showing in good form the calculation of Goodwill in this transaction.
2. Explain the rational for your calculations.