Task: Fugate Energy Corp has recently purchased a small local company, Gleave Inc, for $556,950 cash.
Fugate Energy Corp's chief accountant has been given the assignment of preparing the journal entry to record the purchase. An investigation disclosed the following information about the assets of Gleave Inc.
1) Gleave Inc owned land and a small manufacturing building. The book value of the property on Gleave's records was $115,000. An appraisal for fire insurance purposes had been made during the year. The building was appraised by the insurance company at $175,000. Property tax assessment notices showed that the building's worth was five times the worth of the land.
2) Gleave's equipment had a book value of $75,000. It is estimated by Gleave that it would take six times the amount of book value to replace the old equipment with new equipment. The old equipment is, on average, 50% depreciated.
ASSIGNMENT:
Evaluate each of these items and prepare the journal entry that should be made to record the purchase on Energy's books. (Note: Geave has no liabilities)