Question

Hepner Corporation has the following stockholders’ equity accounts:

Preferred stock (5% cumulative dividend)	$	680,000
Common stock		930,000
Additional paid-in capital		480,000
Retained earnings		1,130,000

The preferred stock is participating. Wasatch Corporation buys 70 percent of this common stock for $1,750,000 and 60 percent of the preferred stock for $810,000. The acquisition-date fair value of the noncontrolling interest in the common shares was $750,000 and was $540,000 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?

Answer 1

Ans.	Goodwill   =   Hepner's acquisition date fair value - Book value of Hepner
		$3,850,000 - $3,220,000
		$630,000
	*Calculations:
1	Consideration transferred :
	for Common stock	$1,750,000
	for Preferred stock	$810,000
	Total consideration transferred (a)	$2,560,000
	Non controlling interest:
	in Common stock	$750,000
	in Preferred stock	$540,000
	Total Non-controlling interest (b)	$1,290,000
	Hepner' s acquisition date fair value (a + b)	$3,850,000
2	Preferred stock	$680,000
	Common stock	$930,000
	Additional paid in capital	$480,000
	Retained earnings	$1,130,000
	Book value of Hepner (total)	$3,220,000