Question
Company Merger Nu Ltd was incorporated on 1 July 2017 and acquired the business of Xi & Co. from 1 April 2017. The purchase
Company Merger Nu Ltd was incorporated on 1 July 2017 and acquired the business of Xi & Co. from 1 April 2017. The purchase price agreed was $800,000, payable on 30 September 2017, including $40,000 interest. Below is the profit and loss account for the year ending 31 December 2017:
Account | Amount |
Sales | 600,000 |
Cost of goods sold | 350,000 |
Gross profit | 250,000 |
Wages and salaries | 90,000 |
Rent | 20,000 |
Distribution expenses | 15,000 |
Interest paid to vendors | 40,000 |
Depreciation | 20,000 |
Miscellaneous expenses | 10,000 |
Net profit | 55,000 |
Required: a. Allocate profits between pre- and post-incorporation periods. b. Record the journal entries for the purchase. c. Determine the value of goodwill.
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