On January 1, 2010, Ritt Corp. purchased 80% of Shaw Corp\'s $10 par common stoc

Question

On January 1, 2010, Ritt Corp. purchased 80% of Shaw Corp's $10 par common stock for $975,000. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with fair values of $100,000 in excess of their carrying amount. The fair value of the noncontrolling interest in Shaw on January 1, 2010, was $250,000. For the year ended December 31, 2010, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the January 1, 2010 consolidated balance sheet, goodwill should be reported at: $0 $75,000 $95,000 $125,000 Save Question 2 (1 point)

Explanation / Answer

Ans D 125000

Explanation:

Goodwill is determined as the excess of investment value over the fair value of the subsidiary's net assets. Investment value is the sum of the parent's investment (which is the fair value of consideration paid) + the fair value of any noncontrolling interest, which in this question is $975,000 + $250,000 = $1,225,000.The fair value of Shaw's identifiable net assets is book value $1,000,000 + write up in plant assets $100,000 = $1,100,000. Therefore, goodwill is investment value $1,225,000 - fair value of identifiable assets $1,100,000 = $125,000,

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