Joined: 15 Oct 2009
Online Status: Offline Posts: 100
Posted: 24 Apr 2011 at 21:47 | IP Logged
Birk Co. purchased 30% of Sled Co.'s outstanding common stock on December 31 for $200,000. On that date, Sled's stockholders' equity was $500,000, and the fair value of its identifiable net assets was $600,000. On December 31, what amount of goodwill should Birk attribute to this acquisition?
a.$0
b.$20,000
c.$30,000
d.$50,000
Choice "b" is correct.
Can someone explain why C or A is not the answer. I taught Goodwill is not amortized under equity method.
Joined: 11 Jun 2009
Online Status: Offline Posts: 987
Posted: 25 Apr 2011 at 12:40 | IP Logged
I do not understand your confusion.
The 20,000 goodwill is the difference between the purchase price (200,000) for 30% ownership and 30% of the identifiable net assets (600,000*.3=180,000). Goodwill is not amortized, but it still would be recognized at the acquisition date.
Joined: 07 Jun 2009 Location: United States
Online Status: Offline Posts: 52
Posted: 25 Apr 2011 at 17:13 | IP Logged
godgift look at the statement used in the discussions in
equity method, we wouldn't recognize goodwill in the books
but rather we will ATTRIBUTE it as part of the cost of the
investment.
Joined: 15 Oct 2009
Online Status: Offline Posts: 100
Posted: 26 Apr 2011 at 07:08 | IP Logged
Zeratul wrote:
I do not understand your confusion.The 20,000
goodwill is the difference between the purchase price (200,000) for
30% ownership and 30% of the identifiable net assets
(600,000*.3=180,000). Goodwill is not amortized, but it still would be
recognized at the acquisition date.
Thank you all, I do not no how I messed this up, I was actually
multiplying the difference( 600-500) by the % of equity. Oh boy !!!
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Topic: Goodwill under equity method
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