On January 1, 20X5, Seaside Company acquires 90 percent ownership in Rainbow Cor

Question

On January 1, 20X5, Seaside Company acquires 90 percent ownership in Rainbow Corporation for $180,000. The fair value of the noncontrolling interest at that time is determined to be $20,000. Rainbow reports net assets with a book value of $160,000 and fair value of $175,000. Seaside Company reports net assets with a book value of $480,000 and a fair value of $525,000 at that time, excluding its investment in Rainbow. What will be the amount of goodwill that would be reported immediately after the combination?

A. $5,000

B. $20,000

C. $25,000

D/ $40,000

Explanation / Answer

Fair Value of Net asset of Rainbow = $ 175000

Total Consideration of 90% Ownership = 180000

Fair value of the noncontrolling interest = $ 20000

Good Will = (180000+20000)-175000

Good Will = $ 25000

Answer

C. $25,000

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