Harry purchases 80% of David by paying $50 a share for 40,000 of David. The remaining 10,000 shares of David are held by minority shareholders and are worth $40 per share both before and after the acquisition. Assume that 100% of the FVNAA of David at date of acquisition is $2,200,000.Calculate goodwillHow much goodwill is allocated to the controlling interest and how much to the noncontrolling interest

Answered: Harry purchases 80% of David by paying…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Harry purchases 80% of David by paying $50 a share for 40,000 of David. The remaining 10,000 shares of David are held by minority shareholders and are worth $40 per share both before and after the acquisition. Assume that 100% of the FVNAA of David at date of acquisition is $2,200,000.

Calculate goodwill
How much goodwill is allocated to the controlling interest and how much to the noncontrolling interest

Expert Solution

Step 1

Given information,

Harry purchases 80% of David by paying $50 a share for 40,000 of David =40,000*50=$2,000,000

The remaining 10,000 shares of David are held by minority shareholders and are worth $40 per share both before and after the acquisition =10,000*40 =$400,000

FVNAA =$2,200,000

Computation of goodwill:

Calculation of purchase Consideration
	Amount ($)
40,000 shares * $ 50	$2,000,000
10,000 shares * $ 40	$400,000
Total purchase consideration	$2,400,000
less : FVNAA	($2,200,000)
Goodwill	$200,000

Goodwill = Total purchase consideration - FVNAA

Hence,

Goodwill is $200,000

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