Question

The balance sheet of Subsidiary Co. shows assets of $86,400 and liabilities of $15,000. The fair value of the assets is $90,000 and the fair value of its liabilities is $15,000. Parent Co. paid Subsidiary $95,000 to acquire it. Parent should record goodwill on this purchase of:

Answer 1

Answer: $20,000

Step-by-step explanation:

The following information can be gotten from the question:

Investment in Subsidiary Co. = $95,000

Less: Net asset value = $71,400

Less: Balance sheet adjustment = $3,600

Goodwill = $95,000 - $71,400 - $3,600

= $20,000

Note that:

Net asset value = Asset with book value - Liability with book value

= $86,400 - $15,000

= $71,400

Balance sheet adjusted = Fair value of asset - book value of asset

= $90,000 - $86,400

= $3,600