Question

A company pays $40,000 in cash and stock to acquire 65% of the voting stock of another company. The fair value of the 35% noncontrolling interest in the acquired company is $22,000. The book value of the acquired company is $25,000. At the date of acquisition, the acquired company's plant assets are overvalued by $6,000 and it has previously unreported identifiable intangible assets valued at $10,000. What is the total amount of goodwill recognized for this acquisition, following U.S. GAAP?

a. $37,000
b. $11,000
c. $33,000
d. $21,000

Answer 1

c. $33,000

Step-by-step explanation:

The computation of the total amount of goodwill recognized is shown below:

Goodwill = Consideration paid + Fair value of non controlling interests - Fair value of net identifiable assets

where,

Fair value of net identifiable assets = Book value of acquired company - Overvalued plant assets + Unreported identifiable intangible assets

= $25,000 - $6,000 + $10,000

= $29,000

So, the goodwill amount is

= $40,000 + $22,000 - $29,000

= $33,000