On January 2, 2021, Barley Corp. purchased 40% of the voting common stock of Wheat Co., paying
Question:
On January 2, 2021, Barley Corp. purchased 40% of the voting common stock of Wheat Co., paying $3,000,000. Barley properly accounts for this investment using the equity method. At the time of the investment, Wheat’s total stockholders’ equity was$5,000,000. Barley gathered the following information about Wheat’s assets and liabilities whose book values and fair values differed:
Book Value | Fair Value | |||||||
Buildings (20-year life) | $ | 1,000,000 | $ | 1,800,000 | ||||
Equipment (5-year life) | 1,500,000 | 2,000,000 | ||||||
Franchises (10-year life) | 0 | 700,000 | ||||||
Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Wheat Co. reported net income of $400,000 for 2021, and paid dividends of $200,000 during that year.
How much goodwill is associated with this investment?
Accounting Principles Volume 2
ISBN: 978-1119502555
8th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak