ExpertMedium1 markMultiple Choice
CPA · Question 25 · Area II: Technical Accounting
Parent Co. acquires 80% of Sub Co. for $800,000. On the acquisition date, the fair value of the Non-Controlling Interest (NCI) is $180,000. The book value of Sub Co.'s net assets is $600,000. The fair value of Sub Co.'s identifiable net assets is $900,000. Under U.S. GAAP, what amount of Goodwill should be reported in the consolidated balance sheet?
Parent Co. acquires 80% of Sub Co. for $800,000. On the acquisition date, the fair value of the Non-Controlling Interest (NCI) is $180,000. The book value of Sub Co.'s net assets is $600,000. The fair value of Sub Co.'s identifiable net assets is $900,000. Under U.S. GAAP, what amount of Goodwill should be reported in the consolidated balance sheet?
Answer options:
A.
$200,000
B.
$80,000
C.
$380,000
D.
$100,000
How to approach this question
Use the Full Goodwill Method (US GAAP). Total Fair Value of Entity = Consideration Paid + FV of NCI. Goodwill = Total FV of Entity - FV of Net Identifiable Assets.
Full Answer
B.$80,000✓ Correct
B
Total Fair Value of Sub = Consideration ($800,000) + FV of NCI ($180,000) = $980,000. Less: FV of Identifiable Net Assets ($900,000). Goodwill = $80,000.
Common mistakes
Subtracting Book Value instead of Fair Value; ignoring NCI (Partial Goodwill).
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