On January 1,20X5,Seaside Company acquires 90 percent ownership in Rainbow Corporation for $180,000.The fair value of the noncontrolling interest at that time is determined to be $20,000.Rainbow reports net assets with a book value of $160,000 and fair value of $175,000.Seaside Company reports net assets with a book value of $480,000 and a fair value of $525,000 at that time,excluding its investment in Rainbow.What will be the amount of goodwill that would be reported immediately after the combination?
A) $5,000
B) $20,000
C) $25,000
D) $40,000

Question

Quizplus · Accepted Answer

The calculation of goodwill is:
Purchase Price - (Fair Value of Net Assets Acquired + Fair Value of Noncontrolling Interest)
Purchase Price = $180,000
Fair Value of Net Assets Acquired = $175,000 (since the book value of $160,000 is less than the fair value of $175,000)
Fair Value of Noncontrolling Interest = $20,000
Goodwill = $180,000 - ($175,000 + $20,000) = $25,000. Therefore, the correct answer is C.

On January 1,20X5,Seaside Company Acquires 90 Percent Ownership in Rainbow