Adam Hamilton, who recently won a major prize in a lottery, left his coaching job to invest in a business of his own. He found what he believed was an ideal business for his background, Hamilton Gym, which had been earning an average profit of $70 000 per year over the last 4 years.

Adam has a copy of Hamilton’s current balance sheet, which discloses the following.

Required

(a) Determine the fair value of the identifiable assets and liabilities of Hamilton

(b) Assuming that Glen is prepared to pay $310 000 cash for Hamilton Gym, determine the goodwill figure. Provide reasons Adam would be prepared to pay this amount.

(c) Prepare general journal entries to acquire the business of Hamilton Gym.

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CURRENT ASSETS Cash at bank Inventory NON-CURRENT ASSETS Land HAMILTON GYM Balance Sheet $ 20 000 90 000 $ 110 000 50 000 Building $ 170 000 Less: Accumulated depreciation 46 000 124 000 Equipment 136 000 Less: Accumulated depreciation 42 000 94 000 268 000 TOTAL ASSETS $ 378 000 LIABILITIES Accounts payable Mortgage payable 20 000 100 000 120 000 EQUITY Carl Ingford, Capital TOTAL LIABILITIES AND EQUITY 258 000 $ 378 000 Adam Hamilton and Channelle Eberhart (the owner of Hamilton Gym) agree that the carrying amount of assets and liabilities are equal to their fair values with the exception of land, which has a fair value of $80 000, and inventory, which has a fair value of $85 000. Adam proposes to purchase the assets (except cash) and to assume the liabilities of Hamilton Gym.