On January 3, 2014, Austin Crop. purchased 25% of the voting common stock of Gai

Question

On January 3, 2014, Austin Crop. purchased 25% of the voting common stock of Gainsville Co., paying $2,000,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholder's equity was $6,000,000. Austin gathered the following information about Gainsville's assets and liablilities: For all other assets and liabilities, book value and fair market value were equal. Any excess of cost over tair attributed to goodwill, which has not been impaired. what is the amount of goodwill associated with the investment? Investment $2m - 0.25 (BV 6m + FMV 100+300+400)=Gw 300K

Explanation / Answer

GOOWILL TO BE RECOGNISED

= $2000000 - 25%($6000000 + $100000 + $300000 + $400000)

= $2000000 - 25% * $6800000

= $2000000 - 1700000

= $300000

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