Ivory Company acquired a 25% interest in White Company on August 1, 20X5, paying $325,000 cash. White Company's December 31, 20X4 balance sheet is attached, reflecting both book values and fair market values. Up until the purchase date, the company earned $70,000 of net income and paid $15,000 of dividends. After the purchase date, the company earned $50,000 of net income and paid $5,000 of dividends. The company uses straight line depreciation and amortization for tangible and intangible assets. The buildings are expected to have an average remaining useful life of 15 years and the equipment is expected to have an average remaining useful life of 5 years from the balance sheet date used above. None of the inventory has been sold by the end of the fiscal year and all of the accounts receivable have been collected by year end. White Company currently is using straight line depreciation for buildings and equipment. Ivory Company estimates that goodwill, if any, will not be impaired as of December 31, 20X5. REQUIRED: (1) (2) Using the attached form, compute the goodwill, if any, that will result from Ivory's purchase of White. Using the attached form, prepare, in proper general journal form, all journal entries that Ivory should make on its books for its investment in White. Provide a brief explanation for each entry. WHITE COMPANY BALANCE SHEET AT DECEMBER 31, 20X4 Book Value Fair Market Value ASSETS S Accounts Receivable (Net) Inventory Land Buildings (Net) Equipment (Net) TOTAL ASSETS 80,000S 96,000 122,000 410,000 263.000 971.000 72,000 110,000 180,000 500,000 320,000 1,182.000 $ $ 200,000 LIABILITIES AND STOCKHOLDERS' EQUITY Notes Payable (Short Term) Common Stock, $2 par value Additional Paid In Capital Retained Earnings TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 200,000 $ 170,000 255.000 346,000 971.000 s (1) IVORY COMPANY CALCULATION OF AMOUNTS FOR PURCHASE OF WHITE COMPANY AT AUGUST 1, 20X5 Purchase Price Less Book Value Acquired Common Stock Additional Paid In Capital Retained Earnings Total Book Value at Time of Purchase Times Percentage Acquired Book Value Acquired Excess of Purchase Price Over Book Value Allocation of Excess Purchase Price: Total Excess Purchase Price Allocated Remaining Excess--Goodwill CALCULATION OF AMORTIZATION AMOUNTS FROM PURCHASE OF WHITE COMPANY Amortization of Buildings Amortization of Equipment = IVORY COMPANY GENERAL JOURNAL FOR YEAR ENDING DECEMBER 31, 20X5 Explanation Debit Date Credit
