Question

On January 1, 2012, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six-year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2012, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2013 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco. The amount allocated to goodwill at January 1, 2012, is:a) $25.00 b) $13.00 c) $9.00 d) $16.00 e) $10.00

Answer 1

The amount allocated to goodwill at January 1 is $16,000. The right answer is d

Step-by-step explanation:

In order to calculate The amount allocated to goodwill at January 1 we would have to use the following formula:

amount allocated to goodwill=Amount paid-Net assets acquired-share in patent appreciation

Amount paid=$100,000

Net assets acquired=($550,000-$300,000)*30%

Net assets acquired=$75,000

Share in patent appreciation=($40,000-$10,000)*30%

Share in patent appreciation=$9,000

Therefore, amount allocated to goodwill=$100,000-$75,000-$9,000

amount allocated to goodwill=$16,000

The amount allocated to goodwill at January 1 is $16,000