ExpertHard1 markMultiple Choice
CPA · Question 36 · Area 3: Select Transactions
Parent Co. buys 80% of Sub Co. for $800,000. The Fair Value of the Non-Controlling Interest (NCI) is $200,000. The Fair Value of Sub's identifiable net assets is $900,000. Under US GAAP, what amount of Goodwill is recognized?
Parent Co. buys 80% of Sub Co. for $800,000. The Fair Value of the Non-Controlling Interest (NCI) is $200,000. The Fair Value of Sub's identifiable net assets is $900,000. Under US GAAP, what amount of Goodwill is recognized?
Answer options:
A.
$100,000
B.
$80,000
C.
$200,000
D.
$0
How to approach this question
Full Goodwill = (Price Paid + FV of NCI) - FV of Net Assets.
Full Answer
A.$100,000✓ Correct
A
US GAAP requires the Full Goodwill method. Goodwill is the difference between the Fair Value of the whole entity (Acquisition Cost + FV of NCI) and the Fair Value of identifiable net assets.
Common mistakes
Using the Partial Goodwill method (Cost - Share of FV Net Assets), which is allowed under IFRS but not GAAP.
Practice the full CPA FAR Practice Exam
50 questions · hints · full answers · grading
More questions from this exam
Q1According to the FASB Conceptual Framework, which of the following statements correctly describes...HardQ2On October 1, Year 1, Host Co. committed to a plan to dispose of a major component of its busines...HardQ3A company has a debt covenant requiring a current ratio of at least 2.0. On December 31, Year 1, ...HardQ4Orion Corp. reports under US GAAP. In preparing its statement of cash flows for the year ended De...HardQ5Parent Co. owns 80% of Sub Co. During Year 1, Parent sold inventory to Sub for $500,000. The cost...Hard