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    This posting addresses how to account for goodwill.

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    Prepare the entry to record the purchse of Terrell Galleries on Graf's books

    Graff and Terrell agree that:
    1. Land is undervalued by $50,000
    2. Equipment is overvalued by $5,000

    Terrell agrees to sell the gallery to Graf for $380,000

    Terrell Galleries
    Balance Sheet
    As Of December 31, 2012

    Assets Liabilities and Stockholders' Equity
    Cash $100,000 Accounts payable $ 50,000
    Land 70,000 Notes payable(long term) 300,000
    Buildings (Net) 200,000 ________
    Equipment (Net) 175,000 Total liabilities 350,000
    Coprights (Net) 30,000 Common stock $200,000
    __________ Retained earnings 25,000

    Total Assets $575,000 Total liab and stockholders' equity $575,000

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    Solution Preview

    Solution to your homework study question:

    Here is your journal entry:

    Cash 100,000
    Land 120,000 (70000 + 50000)
    Building ...

    Solution Summary

    This solution provides a step-by-step solution of how to record the purchase of Terrell Galleries on Graf's books.