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This posting addresses how to account for goodwill.

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 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.