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DEV Inc., is negotiating for the purchase of THK Ltd. The condensed statement of financial position...

DEV Inc., is negotiating for the purchase of THK Ltd. The condensed statement of financial position of THK follows in an abbreviated form:

THK Ltd.
Statement of Financial Position
As at December 31, 2020

Assets

Liabilities and Shareholders' Equity

Cash

  

$118,000

  

Accounts payable

  

  

$ 92,000

Land

70,000

Long-term notes payable

 351,000

Buildings (net)

244,000

Total liabilities

443,000

Equipment (net)

185,000

Common shares

$200,000

Copyright (net)

  98,000

Retained earnings

  72,000

 272,000

Total assets

$715,000

Total liabilities and shareholders' equity

$715,000

DEV and THK agree that the land is undervalued by $30,000 and the business equipment is overvalued by $8,000. DEV agrees to purchase THK for $382,000 cash.

Required:

  1. Prepare the entry to record the purchase of the business's net assets on DEV's books.
  2. Explain why a business may pay more than the fair market value of the net identifiable assets of a company.

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ekkarill92 answered 2 years ago
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