Question 1

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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Subtracting Book Value instead of Fair Value; ignoring NCI (Partial Goodwill).

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 3

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