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A company pays $40,000 in cash and stock to acquire 65% of the voting stock of...

A company pays $40,000 in cash and stock to acquire 65% of the voting stock of another company. The fair value of the 35% noncontrolling interest in the acquired company is $22,000. The book value of the acquired company is $25,000. At the date of acquisition, the acquired company's plant assets are overvalued by $6,000 and it has previously unreported identifiable intangible assets valued at $10,000.

What is the total amount of goodwill recognized for this acquisition, following U.S. GAAP?

A.

$21,000
B.

$37,000
C.

$11,000
D.

$33,000
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Answer #1

Goodwill is the premium that is paid in the acquisition of a business.

Goodwill = Consideration paid + Fair value of non controlling interests - Fair value of net identifiable assets

Fair value of net identifiable assets = Book value of acquired company - Overvalued plant assets + Unreported identifiable intangible assets = $25,000 - $6,000 + $10,000 = $29,000

Goodwill = $40,000 + $22,000 - $29,000 = $33,000

The total amount of goodwill recognized for this acquisition, following U.S. GAAP is $33,000.

Answer is D. $33,000

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