On January 3, 2013, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information about Gainsville's assets and liabilities: For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired. What is the amount of goodwill associated with the investment?

Question

On January 3, 2013, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information about Gainsville's assets and liabilities:  For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired. What is the amount of goodwill associated with the investment?

Quizplus · Accepted Answer

Blgs $500,000 - $400,000 = $100,000 FV > BVEquipment $1,300,000 - $1,000,000 = $300,000 FV > BVFranchises $400,000 - 0 = $400,000 FV > BV$100,000 + $300,000 + $400,000 = $800,000 × 25% = $200,000 Identifiable Excess Paid$8,000,000 × 25% = $2,000,000 BV($2,500,000 Paid) - ($2,000,000 BV) = ($500,000 FV > BV) - ($200,000 Identifiable Excess Paid) = $300,000 Unidentifiable Excess Paid (Goodwill)