Use the following information to answer the question(s) below.

Goldberg Corporation owned a 70% interest in Savannah Corporation on December 31, 2013, and Goldberg's Investment in Savannah account had a balance of $3,900,000. Savannah's stockholders' equity on this date was as follows:
$$\begin{array} { l l }
\text { Capital stock, \$10 par value } & \$ 3,000,000 \
\text { Retained Earnings } & \underline { 2,400,000 } \
\text { Total Stockholders' Equity } &\underline { \$ 5,400,000}
\end{array}$$
-On January 1,2014,assume the fair values of Savannah's identifiable assets and liabilities equal book values.What is the change in the amount of goodwill associated with the issuance of 80,000 additional shares to Goldberg? (Use four decimal places.)
A)Increase goodwill $38,176.
B)Decrease goodwill $38,176.
C)Increase goodwill $384,000.
D)Decrease goodwill $384,000.

Question

Use the following information to answer the question(s) below.

Goldberg Corporation owned a 70% interest in Savannah Corporation on December 31, 2013, and Goldberg's Investment in Savannah account had a balance of $3,900,000. Savannah's stockholders' equity on this date was as follows:
$$\begin{array} { l l } 
\text { Capital stock, \$10 par value } & \$ 3,000,000 \
\text { Retained Earnings } & \underline { 2,400,000 } \
\text { Total Stockholders' Equity } &\underline { \$ 5,400,000}
\end{array}$$
-On January 1,2014,assume the fair values of Savannah's identifiable assets and liabilities equal book values.What is the change in the amount of goodwill associated with the issuance of 80,000 additional shares to Goldberg? (Use four decimal places.)
A)Increase goodwill $38,176.
B)Decrease goodwill $38,176.
C)Increase goodwill $384,000.
D)Decrease goodwill $384,000.

Quizplus · Accepted Answer

Since the fair values of Savannah's identifiable assets and liabilities equal book values, there is no change in the value of the company, and therefore no change in the value of goodwill. Therefore, the issuance of additional shares to Goldberg would not affect the goodwill amount. Hence, the correct answer is option B – Decrease goodwill $38,176.

Use the Following Information to Answer the Question(s) Below -On January 1,2014,assume the Fair Values of Savannah's Identifiable Assets