On April 1, 2016, Paape Company paid $950,000 for all the issued and outstanding stock of Simon Corporation.The recorded assets and liabilities of the Simon Corporation on April 1, 2016, follow:
$$\begin{array} { l r }
\text { Cash } & \$ 80,000 \
\text { Inventory } & 240,000 \
\text { Property and equipment (net of accumulated depreciation of } \$ 320,000 ) & 480,000 \
\text { Liabilities } & ( 180,000 )
\end{array}$$ On April 1, 2016, it was determined that the inventory of Simon had a fair value of $190,000, and the property and equipment (net) had a fair value of $560,000.The entry to distribute the excess of fair value over book value will include:

Question

On April 1, 2016, Paape Company paid $950,000 for all the issued and outstanding stock of Simon Corporation.The recorded assets and liabilities of the Simon Corporation on April 1, 2016, follow: 
$$\begin{array} { l r } 
\text { Cash } & \$ 80,000 \
\text { Inventory } & 240,000 \
\text { Property and equipment (net of accumulated depreciation of } \$ 320,000 ) & 480,000 \
\text { Liabilities } & ( 180,000 )
\end{array}$$ On April 1, 2016, it was determined that the inventory of Simon had a fair value of $190,000, and the property and equipment (net) had a fair value of $560,000.The entry to distribute the excess of fair value over book value will include:

Quizplus · Accepted Answer

The excess of fair value over the book value will result in the recognition of goodwill. Therefore, the entry to distribute the excess of fair value over book value will include a debit to goodwill of $330,000. The inventory will be adjusted to its fair value through a credit to inventory of $50,000, and the property and equipment (net) will be adjusted through a credit to property and equipment (net) of $20,000 (i.e., the difference between the fair value of $560,000 and the book value of $540,000). There is no credit or debit to the investment in Simon Corporation since this account only reflects the initial cost of the investment.

On April 1, 2016, Paape Company Paid $950,000 for All