Question

Assume that the fair values of the investee's net assets approximated the recorded book values of the investee's net assets, except the fair value of the investee's identifiable noncurrent assets is $30,000 higher than book value. In addition, the investee's pre-transaction tax bases in its individual net assets approximate their reported book values. This difference relates entirely to tax-deductible items. Assume the marginal tax rate is 40% for the investor and investee. What amount of goodwill should be reported in the investor's consolidated balance sheet prepared immediately after this business combination

Answer 1

$57,000

Step-by-step explanation:

Calculation for the amount of goodwill should be reported

Total assets $270,000

Less Liabilities ($120,000)

Book value $150,000

($270,00-$120,000)

Acquistion price $225,000

Less Book value ($150,000)

excess price over book value 75,000

($225,000-$150,000)

Allocated to non current assets $18,000

(30000*(1-.4))

Goodwill (75000-18000) $57,000

Therefore the amount of goodwill should be reported is $57,000