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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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