On June 1, 2011, 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:
Balance Sheet at June 1, 2011 Pi Company
Inventory ………………………….….….. $ 13,000
Property and equipment (net) ………..…… 165,000
Total assets ………………………….…… $178,000
Liabilities …………………………..…….. $ 82,000
Common stock (par $1) …………….……… 65,000
Retained earnings …………………..………. 31,000
Total liabilities and stockholders’ equity … $178,000
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, 2011.