Question

Parent Co. purchased the entire business of Subsidiary Co. including all its assets and liabilitie:s for $600,000. Below is information related to the two companies:
Parent Subsidiary
Fair value of assets $1,050,000 $800,000
Fair value of liabilities 575,000 300,000
Reported assets 800,000 650,000
Reportedliabilities 500,000 250,000
Net Income for the year 60,000 50,000
How much goodwill did Parent pay for acquiring Subsidiary?
A) S200,000.
B) $150,000.
C) $300,000
D) $100,000.

Answer 1

Answer:

Option D ($100,000) is the correct choice.

Explanation:

Given:

Fair value of Assets,

= $800,000

Fair value of liabilities,

= $300,000

Consideration amount,

= $600,000

Now,

The net assets of subsidiary will be:

= $Assets \ fair \ value-Liabilities \ fair \ value$

= $800000-300000$

= $500000$

hence,

The goodwill will be:

= $Consideration \ amount-Net \ assets \ of \ subsidiary$

= $600000-500000$

= $100000$ ($)