On January 1, 2022, Ven Company purchased Herr Company for $1,800,000 in cash. The summarized

accounts of Herr Company at the time of purchase are shown below:

Herr Company - January 1, 2022

Current Assets $650,000 Non-Current Assets $330,000

Liabilities $250,000 Shareholders Equity $730,000

The total fair market value of the total assets of Herr Company is $1,350,000 on

January 1, 2022. The liabilities book value is the same as their fair market value.

Instructions:

a) The total fair market value of Herrs total assets is greater than the total book value in the accounts

of the company on January 1, 2022. Briefly explain the reason(s) for this difference in values.

(2 Marks)

b) Why would Ven Company pay more for Herr Company than the fair market value of Herrs net assets

(i.e. assets minus liabilities)? (2 Marks)

c) Prepare the journal entry by Ven Company to record the purchase of Herr Company on

January 1, 2022. (2 Marks)