Pail,Inc.holds 100 percent of the common stock of Shovel Company,an investment acquired for $680,000.Immediately following the combination,Pail's net assets have a book value of $1,150,000 and a fair value of $1,390,000.The book value and the fair value of Shovel's net assets on the date of combination are $400,000 and $550,000,respectively.Immediately following the combination,a consolidated balance sheet is prepared.
-Based on the information given above,goodwill will be reported in the consolidated balance sheet in the amount of:
A)$240,000.
B)$130,000.
C)$150,000.
D)$270,000.

Question

Quizplus · Accepted Answer

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The purchase price is $680,000, and the fair value of Shovel's net assets is $550,000. Therefore, goodwill is $680,000 - $550,000 = $130,000.

Pail,IncHolds 100 Percent of the Common Stock of Shovel Company,an