Question

Hepner Corporation has the following stockholders' equity accounts:

Preferred stock (6% cumulative dividend) $560,000
Common stock 810,000
Additional paid-in capital 360,000
Retained earnings 1,010,000
The preferred stock is participating. Wasatch Corporation buys 80 percent of this common stock for $1,660,000 and 70 percent of the preferred stock for $630,000. The acquisition-date fair value of the noncontrolling interest in the common shares was $415,000 and was $270,000 for the preferred shares. All of the subsidiary's assets and liabilities are viewed as having fair values equal to their book values.

What amount is attributed to goodwill on the date of acquisition?

Answer 1

To determine the amount attributed to goodwill on the date of acquisition, compare the total purchase price and noncontrolling interest to the fair value of net assets and adjust for any difference that is attributable to goodwill.

Step-by-step explanation:

To calculate the amount attributed to goodwill on the date of acquisition, we need to follow a few steps. The purchase price paid for the common and preferred stock needs to be compared to the fair value of the acquired net assets, which in this case, is equal to the book value because all assets and liabilities are viewed as having fair values equal to their book values. The noncontrolling interest also needs to be accounted for. In essence, the computation of goodwill involves totaling the fair value of the controlling interest (purchase price) and noncontrolling interest and subtracting the fair value of the net assets (book value).

Answer 2

$235,000

Step-by-step explanation:

The computation of the goodwill amount attributed is shown below:

Common stock $1,660,000

Preferred stock $630,000

Non controlling interest in common stock $415,000

Non controlling interest in preferred stock $270,000

Fair value at acquisition date $2,975,000

Book value $2,740,000 (560,000 + $810,000 + $360,000 + $1,010,000)

Goodwill $235,000