Question

Suwannee Company issued 20,000 additional shares of its common stock for $1.6 milion. Suwannee Company's oquity sections immediately before and immediately after this issuance are presented below Assume that Suwaneee Company issued the 20,000 additional shares to Palatka Corporation, whose ownership interest in Suwannee increased to 100,000 shares, If the cartying amount of the acquired net assots of Suwannee is equal to their fair value at the time the addtional shares are issued, the goodwil indicatod in the acquisition of the additional shares equals Before $1.000.0%0 2500.000 3.900,000 $7.400,000 After $1,200,000 3,900 000 3,900.000 $9.000 000 Common stock, $10 par Additional paid in capital Retained earnings Total equity O $320 000 $1,580.000 $20,000

Answer 1

A.$0.

since the carrying amount of the acquired net assets equal to fair value at the time of issue of shares, goodwill does not arise in this case.

It would have arisen if the consideration received is greater than the fair value of shares issued.

Here there is an increase in share of palatka corporation from (80,000 /100,000=>80%) to (100,000/120,000)=>83.3%.