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Goodwill on Company Acquistion

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

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

Solution Summary

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