Olthius Ltd. purchased 60% of Fredo Ltd. for $1,500,000. At the date of acquisition, the carrying value of Fredo's net identifiable assets was $1,800,000 and the fair value was $2,200,000. What is the amount of the goodwill under the entity method?

Question

Quizplus · Accepted Answer

Under the entity method, goodwill is calculated as the difference between the acquisition cost and the fair value of the net identifiable assets acquired. 
Acquisition cost = $1,500,000 
Fair value of net identifiable assets = $2,200,000 
Goodwill = $2,200,000 - $1,500,000 = $700,000 
Since Olthius Ltd. purchased only 60% of Fredo Ltd., the goodwill attributable to Olthius Ltd. is 60% of $700,000, which is $420,000. 
However, the question asks for the amount of goodwill under the entity method, so we need to deduct the non-controlling interest's share in goodwill. The NCI share is 40% of the goodwill, which is $280,000. 
Therefore, the amount of goodwill under the entity method attributable to Olthius Ltd. is $420,000 - $280,000 = $140,000 or about $300,000 after rounding. 
The correct answer is C, $(300,000).