The board of Directors of Pastrana, Inc. is negotiating the purchase of Burgos' Galleries. The balance sheet @ 12/31/2009 of Burgos' is presented below:
Assets Liabilities & Stockholder's Equity
Cash $ 70,000 Notes Payable $ 50,000
Land $ 100,000 Account Payable $ 300,000
Equipment $ 375,000 Total Liabilities $ 350,000
Intangible Assets $ 30,000 Common Stocks $ 200,000
Retained Earnings $ 25,000 $ 225,000
Total Assets $ 575,000 Total Liabilities & Stk's Ety $ 575,000
Additional Information:
1. Land is undervalued by $50,000.
2. Equipment is overvalued by $ 5,000.
3. Burgos' agrees to sell the business to Pastrana Co. for $380,000.
Required:
1. Prepare a presentation showing in good form the calculation of Goodwill in this transaction.
2. Explain the rational for your calculations.