DC Company purchased 100% of the outstanding common shares of FA Company on December 31,20X3 for $170,000.At that date,FA had $100,000 of outstanding common stock and retained earnings of $30,000.It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $20,000 and the carrying value of the inventory exceeded its fair value by $10,000.The capital assets had a remaining useful life of eight years as of the acquisition date and have no salvage value.Inventory turns over four times a year.It is now 20X6 and DC has been very pleased with how profitable its investment in FA has been.On DC's consolidated financial statements at December 31,20X6,what balance should be reported for goodwill?
A)$10,000
B)$30,000
C)$40,000
D)$70,000

Question

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair value of net identifiable assets. The fair value of net identifiable assets is $140,000 ($100,000 common stock + $30,000 retained earnings + $20,000 fair value adjustment for capital assets - $10,000 fair value adjustment for inventory). Therefore, goodwill is $170,000 (purchase price) - $140,000 (fair value of net identifiable assets) = $30,000.

DC Company Purchased 100% of the Outstanding Common Shares of FA