Assume that on January 1, 2019, an investor company acquired 100% of the outstanding voting common stock
Question:
Assume that on January 1, 2019, an investor company acquired 100% of the outstanding voting common stock of an investee company in exchange for $160,000. The transaction is a taxable asset acquisition under the Internal Revenue Code. The following financial statement information is for the investor company and the investee company on January 1, 2019, prepared immediately before this transaction.
| Book Values | ||
|---|---|---|
| Investor | Investee | |
| Current assets | $100,000 | $60,000 |
| Noncurrent assets | 275,000 | 120,000 |
| Total assets | $375,000 | $180,000 |
| Liabilities | $150,000 | $100,000 |
| Common stock ($1 par) | 20,000 | 10,000 |
| Additional paid-in capital | 130,000 | 50,000 |
| Retained earnings | 75,000 | 20,000 |
| Total liabilities & equity | $375,000 | $180,000 |
Assume the fair values of the investee’s net assets approximated the recorded book values of the investee’s net assets, except the fair value of the investee’s identifiable noncurrent assets is $30,000 higher than book value. In addition, the investee’s pre-transaction tax bases in its individual net assets approximate their reported book values. Any book-tax differences relate entirely to tax-deductible items. Assume the marginal tax rate is 20% for the investor and investee. What amount of goodwill should be reported in the investor’s consolidated balance sheet prepared immediately after this business combination?
A.$80,000
B.$160,000
C.$56,000
D.$50,000
Expert Answer:
To find the amount of goodwill that should be reported in the investors consolidated balance sheet a... View the full answer
