On January 3, 2011, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying
Question:
On January 3, 2011, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information about Gainsville's assets and liabilities
Book Value Fair Value
Buildings (10 year life) $ 400,000 $ 500,000
Equipment (5 year life) $ 1,000,000 $ 1,300,000
Franchises (8 year life) $ - $ 400,000
For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired.
a) What is the amount of goodwill associated with the investment?
b) For 2011, what is the total amount of excess amortization for Austin's 25% investment in Gainsville?
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of... Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Step by Step Answer:
Advanced Accounting
ISBN: 978-0133451863
12th edition
Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith