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19 July, 16:23

On January 1, 20x1, the ABC Corporation purchased 80% of the XYZ Company's voting stock for $3,000,000. The FMV of all of XYZ's stock was $4,025,000, and XYZ's net assets had a book value of $2,850,000; the fair values of XYZ's assets are equal to their book values, with the exception of land, which is $625,000 greater than its book value. Assuming that ABC Corporation used the acquisition method to prepare its consolidated balance sheet, how much goodwill was reported on the January 1, 20X1 consolidated balance sheet assuming that the "full goodwill" method is used?

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  1. 19 July, 17:31
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    Answer: $440000

    Explanation:

    Fair market value = $4025000

    Book value of asset = $2,850,000

    Land value = $625,000

    The value of the goodwill will be

    (Fair market value - book of asset - land value) * 80%

    = ($4,025,000 - $2,850,000 - $625,000) * 80%

    = 550000 * 80%

    = 550000 * 0.8

    = $440,000
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