Question

MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in an acquisition that resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of acquisition. What value would be attributed to this land in a consolidated balance sheet at the date of acquisition?

Multiple Choice
a. $250,000.
b. $150,000.
c. $600,000.
d. $360,000.
e. $460,000.

Answer 1

b. $150,000.

Step-by-step explanation:

It is provided that with this acquisition goodwill is created, that means any additional value paid more than the book value of assets is transferred to goodwill.

In this case all the assets of subsidiary are recorded at book value in balance sheet.

Since it holds 60% in subsidiary Nomes Inc. value at balance sheet date in consolidated balance sheet will be 60% of book value.

= $250,000
`*` 60% = $150,000

Final answer

b. $150,000.