On January 1, 2021 Major acquired 60% of Minor for a cash payment of $600,000. At date of acquisition, the fair value of Minor's net assets were $300,000. Assuming there is no control premium, how much Goodwill is recorded in the consolidated financial statements $420,000 $300,000 $700,000 $60,000

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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**Acquisition and Goodwill Calculation**

On January 1, 2021, Major acquired 60% of Minor for a cash payment of $600,000. At the date of acquisition, the fair value of Minor’s net assets was $300,000. Assuming there is no control premium, how much Goodwill is recorded in the consolidated financial statements?

- $420,000
- $300,000
- $700,000
- $60,000

**Analysis:**

To calculate Goodwill, follow these steps:

1. **Determine the Total Purchase Price:**
   - Major paid $600,000 for 60% of Minor. This implies the full value of Minor is: \
     \( \text{Total Value} = \frac{600,000}{0.6} = 1,000,000 \).

2. **Assess Fair Value of Net Assets:**
   - The fair value of Minor's net assets is $300,000.

3. **Calculate Goodwill:**
   - Goodwill is calculated as the Total Purchase Price minus the Fair Value of Net Assets: \
     \( \text{Goodwill} = 1,000,000 - 300,000 = 700,000 \).

Therefore, the Goodwill recorded in the consolidated financial statements is **$700,000**.
Transcribed Image Text:**Acquisition and Goodwill Calculation** On January 1, 2021, Major acquired 60% of Minor for a cash payment of $600,000. At the date of acquisition, the fair value of Minor’s net assets was $300,000. Assuming there is no control premium, how much Goodwill is recorded in the consolidated financial statements? - $420,000 - $300,000 - $700,000 - $60,000 **Analysis:** To calculate Goodwill, follow these steps: 1. **Determine the Total Purchase Price:** - Major paid $600,000 for 60% of Minor. This implies the full value of Minor is: \ \( \text{Total Value} = \frac{600,000}{0.6} = 1,000,000 \). 2. **Assess Fair Value of Net Assets:** - The fair value of Minor's net assets is $300,000. 3. **Calculate Goodwill:** - Goodwill is calculated as the Total Purchase Price minus the Fair Value of Net Assets: \ \( \text{Goodwill} = 1,000,000 - 300,000 = 700,000 \). Therefore, the Goodwill recorded in the consolidated financial statements is **$700,000**.
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