Question

Hepner Corporation has the following stockholders’ equity accounts: Preferred stock (7% cumulative dividend) $ 580,000 Common...

Hepner Corporation has the following stockholders’ equity accounts:

Preferred stock (7% cumulative dividend) $ 580,000
Common stock 830,000
Additional paid-in capital 380,000
Retained earnings 1,030,000

The preferred stock is participating. Wasatch Corporation buys 70 percent of this common stock for $1,680,000 and 60 percent of the preferred stock for $660,000. The acquisition-date fair value of the noncontrolling interest in the common shares was $720,000 and was $440,000 for the preferred shares. All of the subsidiary’s assets and liabilities are viewed as having fair values equal to their book values.

What amount is attributed to goodwill on the date of acquisition?

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Answer #1

Step-1

Compute assumed value of net assets as follows:

Assumed value of net assets = common stock + additional paid in capital + retained earnings + preferred stock

Assumed value of net assets = 830000 + 380000 + 1030000 + 580000

Assumed value of net assets = $ 2820000

Step -2

Fair value of asset acquired = Assumed value of net assets - fair value of non-controlling interest

Fair value of asset acquired = 2820000 - 720000 - 440000

Fair value of asset acquired = $ 16660000

Step - 3

Goodwill value on acquisition = purchase cost of stock - Fair value of asset acquired

Goodwill value on acquisition = 1680000 + 660000 - 1660000

Goodwill value on acquisition = $ 680000

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