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17 September, 04:10

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. $37,000

b. $11,000

c. $33,000

d. $21,000

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  1. 17 September, 07:09
    0
    c. $33,000

    Explanation:

    The computation of the total amount of goodwill recognized is shown below:

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

    where,

    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

    So, the goodwill amount is

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

    = $33,000
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