Purchase Solution

Goodwill on Company Acquistion

Not what you're looking for?

Ask Custom Question

6. A and B Companies have been operating separately for five years. Each company has a minimal amount of liabilities and a simple capital structure consisting solely of voting common stock. A Company, in exchange for 40 percent of its voting stock, acquires 80 percent of the common stock of B Company. This was a "tax-free" stock-for-stock (type B) exchange for tax purposes. B Company assets have a total net fair market value of $800,000 and a total net book value of $580,000. The fair market value of the A stock used in the exchange was $700,000. The goodwill on this acquisition would be:
a. Zero.
b. $60,000.
c. $120,000.
d. $236,000.

Please provide a break down in each catagory when arriving at the answer
fair market value
book value
Common Stock
Additional Paid-In Capital
Goodwill

Purchase this Solution
Solution Summary

This solution identifies the correct answer and shows step-by-step calculations on goodwill acquisition of B Company by A Company.

Solution Preview

ANSWER: B

Fair Market Value: 800,000*80%=640,000
Book ...

Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

View More Free Quizzes
Related BrainMass Solutions

  • Proposed acquistion of a new milling machine

    The Campbell Company is evaluation the proposed acquistion of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use by your firm.

  • Expensing Election and MACRS Depreciation

    This machine was his only asset acquistion of the year. Thad elects to expense $250,000 of the acquistion cost under Sec. 179 but elects out of bonus depreciation. a. What is Thad's total depreciation deduction for the machine in 2009? b.

  • Social learning theory

    100542 Explain how learning theory explains the acquistion of prejudice. Explain how learning theory explains the acquistion of prejudice. Use examples to illustrate. Social learning theory was proposed by a social psychologist, Albert Bandura.

  • Cost of acquistion: capitalizable costs vs current expense

    Various other costs relating to the acquistion and installation of the machine including transportation, electrical wiring, special base, and so on amount to $7,500.

  • Language Acquistion

    268152 Language Acquistion What factors affect language acquisition? Which factor do you believe has the largest influence on language acquisition? Explain why.

  • Ace and Baskett Co: Equity methods

    224419 Ace and Baskett Co: Equity methods Ace purchases 40% of Baskett Co. on Jan 1 for $500,000. Although Ace did not use it, the acquistion gave Ace the ability to apply significant influence to Baskett's operating and financing policies.

  • Significance of goodwill in the consolidation process

    The goodwill calculated was amortized by the company over 40 years. But according to new rule the company do not have to amortize its goodwill asset but it is allowed to keep it on the books forever till the time the acquired value loses its value.

  • Does elimination of the amortization of goodwill make sense

    When the purchase method is used, the acquiring company will put the premium they paid for the other company on their balance sheet under the "Goodwill" category. Accounting rules require the goodwill be amortized over the course of 40 years.

  • Goodwill: Can it be increased, decreased, or eliminated?

    It is important to mention that goodwill is recorded only by a company that purchases another company. An outstanding reputation may create goodwill for a company, but that company never records goodwill for its own business.

View More Related Solutions