Question 3 Bad-land Company purchased JJ Inc. for a price of $3,250,000 in cash. As a result of the acquisition, Bad-land Company obtained all of the assets and assumed all of the liabilities of JJ Inc. The following represents the balance sheet of JJ Inc., at cost and fair market value, on the date of the acquisition: Account Cash Inventories Prepaid Insurance Net Equipment Net Building Land Patents Accounts Payable Long-Term Debt Cost $185,000 200,000 25,000 450,000 600,000 800,000 150,0000 Fair Market Values $185,000 240,000 25,000 600,000 950,000 1,450,000 300,000 335,000 450,000 1. Calculate the cost of goodwill. Show all the calculations and steps. [10 Marks] Step One: Add up the Fair market value of all assets. 185,000 + 240,000 + 25,000 + 600,000 + 950,000 + 1,450,000 + 300,000 = 3,750,000 Step Two: Add up the Fair market value of all liabilities. 335,000 + 450,000 = 785,000 Step Three: Net Fair Market Value of the Company Net Fair Market Value = Fair Market Value of Assets Fair Market Value of Liabilities = 3,750,000 - 785,000 = 2,965,000 Step Four: Calculate the value of Goodwill = Purchase Price - Net Fair Market Value of Company = 3,250,000 - 2,965,000 = 285,000 2. Record the entry for the purchase of JJ Inc.[10 Marks] Account Title Debit Credit Prepaid Expenses Net Building 25,000 950,000 1,450,000 Land Inventories 240,000 Net Equipment 600,000 300,000 Patents goodwill 285,000 Accounts Payable 335,000 Long-Term Debt 450,000 Cash 185,000