On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s...
On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings.
Using the acquisition method, what is the amount of goodwill?
Question 17 options:
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$515,000 |
|
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$500,000 |
|
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$775,000 |
|
|
$400,000 |
|
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$320,000 |
Homework Answers
Answer : $500,000
Explanation:
Fair value of Bob's Bricks' net assets = $1,300,000 - $100,000 + $175,000 = $1,375,000
Fair value of Bob's Bricks Inc = Purchase consideration paid by Cobb Enterprises / % of shares purchased .
= $1,500,000 / 80 % = $1,875,000
Amount of goodwill = Fair value of Bob's Bricks Inc - Fair value of Bob's Bricks' net assets
= $1,875,000 - $1,375,000 = $500,000
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