P Corp.owns 800 of Q Corp.'s 1,000 outstanding voting common shares which it accounts for using the equity method.On December 31,2009,the shareholder's equity section of Q Corp.was comprised of $15,000 in common stock and retained earnings in the amount of $450,000.
Q Corp.reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31,2010.
On January 1,2011,P Corp.sold 200 shares of its investment in Q Corp.for $125,000.On January 1,2010,the investment account had a balance of $420,000.The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
-What is the amount of Goodwill that arose from P's investment in Q?

Question

Quizplus · Accepted Answer

Goodwill arises when the purchase price of an investment is higher than the fair value of the net assets acquired. In this case, there is no mention of a purchase price or fair value of net assets acquired, so it can be assumed that there is no goodwill. Therefore, the answer is choice D.

P CorpOwns 800 of Q Corp