Pine Company purchased a 60% interest in the Scent Company on January 1, 2016 for $360,000.On that date, the stockholders' equity of Scent Company was $450,000.Any excess cost on 1/1/16 was attributable to goodwill.Pine purchased another 20% interest on January 1, 2019 for $200,000.On January 1, 2019, Scent Company's stockholders' equity was $700,000, the entire increase due to retained earnings.The goodwill balance on the December 31, 2019, balance sheet is ____.

Question

Quizplus · Accepted Answer

Goodwill is calculated as the excess of the purchase price over the proportionate share of the net assets acquired.

On January 1, 2016: 
Purchase price: $360,000 
Proportionate share of net assets: 60% x $450,000 = $270,000 
Excess cost: $90,000 (attributable to goodwill)

On January 1, 2019: 
Purchase price: $200,000 
Proportionate share of net assets: 20% x ($700,000 - $450,000) = $50,000 (since the entire increase in stockholders' equity was due to retained earnings) 
Excess cost: $150,000

Therefore, the goodwill balance on the December 31, 2019 balance sheet is $150,000.

Pine Company Purchased a 60% Interest in the Scent Company