1. Star Corporation purchases Trek Inc. for $71,660,000. Star Corporation is gaining the following assets and liabilities:
Value on Trek’s Books Current Market Value
Inventory $456,000 $456,000
Land $1,050,000 $50,000,000
Trademarks $64,000 $20,004,000
Patent $15,000 $1,850,000
Accounts Payable $650,000 $650,000
Prepare the journal entry for Star to record the purchase of Trek.
2. Assume the same facts as in problem 1 above, but assume that Star pays $100,000,000 for Trek.
a. When a purchasing company pays more than the fair market value of the assets of a company being acquired, what is this excess payment called?
b. Why might Star be willing to pay more than $71,660,000 for Trek?
c. Record the purchase of Trek by Star given this new purchase amount of $100,000,000.