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dimulka [17.4K]
3 years ago
10

On November 30, 2013, Piani Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock

of Surge Company.
Surge 's balance sheet at November 30, 2013, showed a book value of $8,000,000. Additionally, the fair value of Surge's property, plant, and equipment on November 30, 2013, was $1,200,000 in excess of its book value.

What amount, if any, will be shown in the balance sheet caption "Goodwill" in the November 30, 2013, consolidated balance sheet of Piani Incorporated, and its wholly owned subsidiary, Surge Company?

a. $0.
b. $800,000.
c. $1,200,000.
d. $2,000,000.
Business
1 answer:
Alenkinab [10]3 years ago
7 0

Answer:

b. 800,000

Explanation:

Step 1; Calcualate Excess Valuation of Surge in Piani's Consolidated Balance Sheet

Surge's balance sheet as at November 30, 2013 showed a book value of $8,000,000

However, Piani Purchased 400,000 Shares of Surge's  Outstanding Common Stock at $25 each. The total Cost therefore to Piani is

$25× 400,000= $10,000,000

The difference between Surge's book value and Piani's valuation of Surge is

Surge's value in Piani- Surge's book value

$10,000,000-$8,000,000= $2,000,000

Step 2: Calculate the Difference between the Excess Property Fair Value and the Step One Total to arrive at the Goodwill

Out of the $2,000,000; $1,200,000 represents the excess of the fair value of Surge's  Property, Plant and Equipment on November 30, 2013.

The Goodwill Value Therefore is

The difference in Surge's Stock Valuation- Excess Fair Value of Surge's Property, Plant and Equipment

= $2,000,000-$1, 200,000

=$800,000

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Answer:

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Now the balance in the income summary is shown above i.e $26,400

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