University of Liberia is thinking about acquiring A.M.E University. University of Liberia

is considering two methods of accomplishing control and is wondering how the accounting treatment will differ under each method. University of Liberia has estimated that the fair values of A.M.E.University's net assets are equal to their book values, except for the equipment, which is understated by $20,000. The following balance sheets have been prepared on the date of acquisition:

Assets. UL A.M.E

Cash$ 540,000 $20,000

Act/rec50,000. 70,000

Inventory50,000 100,000

Ne/prope 230,000. 270,000

Tot. $870,000 $460,000

Liabilities and Equity

1. Current liabilities$140,000 $ 80,000

Bonds payabl250,000 100,000

Stockholders' equity:

Common stock ($100par) 200,000 150,000

Retained earnings --------280,000 130,000

Total liabilities and equity -$870,000 $460,000

A)Assume University of Liberia purchased the net assets directly from A.M.E. University for $530,000.

a)Prepare the entry that A.M.E. University would make to record the purchase.

b) Prepare the balance sheet for University of Liberia immediately following the purchase.

2. Assume that 100% of the outstanding stock of A.M.E. University is purchased from the former stockholders for a total $530,000.

Prepare the entry that University of Liberia would make to record the purchase.