On January 1, 2014, ABC, Inc., paid $70,500 for a 40 percent interest in Charlot
ID: 2492554 • Letter: O
Question
On January 1, 2014, ABC, Inc., paid $70,500 for a 40 percent interest in Charlotte Corporation's common stock. This investee had assets with a book value of $224,500 and liabilities of $96,500. A patent held by Charlotte having a $13,300 book value was actually worth $41,800. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2014, Charlotte earned income of $51,500 and declared and paid dividends of $17,000. In 2015, it had income of $70,500 and dividends of $22,000. During 2015, the fair value of ABC's investment in Charlotte had risen from $85,700 to $93,300.
a. Assuming ABC uses the equity method. Calculate Goodwill? (Show your calculation)
Explanation / Answer
Value of Net Assets:
Book Value of Assets $224500
- Liabilities -$96500
Net Assets $128000
Calculation of Goodwill:
Cost of Investment $70500
- Share in Net Assets (128000 * 40%) -$51200
Goodwill $19300
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