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

Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1, 2014, at a cost of $400,000. The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings. Book values were equal to fair values except for land and inventory. The book value of Sanders' land was $10,000, and fair value was $22,000. The book value of Sanders' inventory was $30,000, and fair value was $25,000.

-Under the parent company theory,what amount of goodwill was reported on the consolidated balance sheet at December 31,2014?

Question

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

Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1, 2014, at a cost of $400,000. The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings. Book values were equal to fair values except for land and inventory. The book value of Sanders' land was $10,000, and fair value was $22,000. The book value of Sanders' inventory was $30,000, and fair value was $25,000.

-Under the parent company theory,what amount of goodwill was reported on the consolidated balance sheet at December 31,2014?

Quizplus · Accepted Answer

According to the parent company theory, goodwill is the excess of the cost of acquisition over the fair value of the net assets acquired.

In this case, the cost of acquisition was $840,000 and the fair value of the net assets acquired was $685,600. Therefore, the goodwill would be:

Goodwill = $840,000 - $685,600 = $154,400

Therefore, the correct answer is C) $154,400.

Use the Following Information to Answer the Question(s) Below