Question

Part A (questions 1 through 25)

The following information and table pertain to questions 1 through 25.

On January 1, 2010, Apple Company acquired 75% of the outstanding common stock of Orange Company for $600,000 in cash. On the date of the acquisition, the fair value of the 25% noncontrolling interest in the Orange Company was $200,000. The book value of Orange Company’s net assets on January 1, 2010, was $500,000 and consisted of common stock of $150,000 and retained earnings of $350,000.

Some of Orange Company assets were internally developed and were not reported on its books or had fair value that differed from it carrying value on the date of the acquisition as follows:

	Book Values	Fair Values
Patented Technologies (10 years of remaining life)	50,000	150,000
Customer List (5 years of remaining life)	-0-	75,000

Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, Apple has not had any goodwill impairments.

Intra-entity inventory sales between the two companies have been made as follows:

Year	Cost to Apple	Transfer Price to Orange	Ending Balance(at transfer price)
2010	130,000	180,000	45,000
2011	150,000	210,000	70,000

Presented below are the financial statements for these two companies as of December 31, 2011, prepared from their separately maintained accounting systems. Credit balances are indicated by parentheses.

Question 1

What is the amount of goodwill, if any, that Apple Company should recognize on its consolidated financial statements?

		0
		125,000
		93,750
		300,000
		None of the answers is correct

Answer 1

	Computation of Goodwill	Total	Apple (75%)	NCI (25%)
	Consideration paid to acquire 75% stock		$600,000
	Fair value of 25% noncontrolling interest			$200,000
	Total fair value	$800,000	$600,000	$200,000
	Less: Book Value
	Common Stock	$150,000	$112,500	$37,500
	Retained Earnings	$350,000	$262,500	$87,500
	Total Book value	$500,000	$375,000	$125,000
	Excess of fair value over book value	$300,000	$225,000	$75,000
	Excess allocated to:
	Patented technologies	$100,000	$75,000	$25,000
	Customer list	$75,000	$56,250	$18,750
	Goodwill	$125,000	$93,750	$31,250
B	$125,000