Question

What amount of goodwill related to the acquisition of the investee must the acquiring company report in pre-consolidation parent-only balance sheet immediately following the acquisition of investee com-pany common stock

Answer 1

Answer: $40,000

Explanation:

Goodwill to be reported = Purchased price - Fair value of net assets

Fair Value of Net Assets = Current Assets + Property and Equipment, net - Liabilities

Property and equipment are $110,000 more than carrying amount so;

Fair Value of Net Assets = 75,000 + (700,000 + 110,000) - 375,000

Fair Value of Net Assets = $510,000

Goodwill is therefore;

= 550,000 - 510,000

= $40,000