Question

Parent Co. purchased the entire business of Subsidiary Co. including all its assets and liabilities for $600,000. Below is information related to the two companies: Parent Subsidiary Fair value of assets $1,050,000 $800,000 Fair value of liabilities 575,000 300,000 Reported assets 800,000 650,000 Reported liabilities 500,000 250,000 Net Income for the year 60,000 50,000 How much goodwill did Parent pay for acquiring Subsidiary

Answer 1

$100,000

Step-by-step explanation:

Calculation of Net amount payable:

Net Amount Payable = Fair Value of asset - Fair Value of liabilities = $800,000 - $300,000 = $500,000

Calculation of Goodwill that Parent pays to Subsidiary:

Goodwill = Actually paid amount - Net amount payable = $600,000 - $500,000 = $100,000