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 $40,000 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

I could not find the exact details related to this question so here is a similar question to guide you.

Goodwill = Acquisition Price - Net book value (Investee)

= 75,000 - ( Assets - Liabilities)

= 75,000 - ( 90,000 - 40,000)

= $25,000

Identifiable noncurrent assets is overstated by $10,000 however. This will have to be adjusted for tax and then removed from Goodwill to find the Net goodwill that should be reported in the investor's consolidated balance sheet prepared immediately after this business combination.

= 10,000 ( 1 - 40%)

= $6,000

Net Goodwill = 25,000 - 6,000

= $19,000