On December 31,20X8,Polaris Corporation acquired 100 percent ownership of Star Corporation.On that date,Star reported assets and liabilities with book values of $300,000 and $100,000,respectively,common stock outstanding of $50,000,and retained earnings of $150,000.The book values and fair values of Star's assets and liabilities were identical except for land which had increased in value by $10,000 and inventories which had decreased by $5,000.
-Based on the preceding information,what amount of goodwill will be reported if the acquisition price was $240,000?
A)$0
B)$40,000
C)$15,000
D)$35,000

Question

Quizplus · Accepted Answer

Goodwill is calculated as the difference between the acquisition price and the fair value of net assets acquired. In this case, the fair value of net assets acquired is calculated as follows:

Assets (excluding land): $300,000 - $5,000 = $295,000
Land: $10,000 (increase in fair value)
Liabilities: $100,000

Fair value of net assets acquired = $295,000 + $10,000 - $100,000 = $205,000

The acquisition price was $240,000. Therefore, the goodwill will be:

Goodwill = Acquisition price - Fair value of net assets acquired
Goodwill = $240,000 - $205,000 = $35,000

Hence, the correct answer is option D.

On December 31,20X8,Polaris Corporation Acquired 100 Percent Ownership of Star