B is corrent. Investments between 20% and 50% of the outstanding stock are presumed to give the investor significant influence over the investee and as such should be accounted for under the equity method. Birk Co. purchased 30% of the outstanding common stock of Sled. Birk Co. is presumed to have significant influence over Sled and must account for this investment using the equity method. Under the equity method, any excess paid over the fair value of the net assets is considered goodwill. The total purchase price paid by Birk was $200,000 and the fair value of the net assets was $180,000 ($600,000 x 30%). Goodwill would be the difference between $200,000 and the $180,000. Goodwill is $20,000.
A is incorrect. Birk Co. purchased 30% of the outstanding common stock of Sled. Birk Co. is presumed to have significant influence over Sled and must account for this investment using the equity method. Under the equity method, any excess paid over the fair value of the net assets is considered goodwill. The total purchase price paid by Birk was $200,000 and the fair value of the net assets was $180,000 ($600,000 × 30%). Goodwill would be the difference between $200,000 and the $180,000. Goodwill is $20,000.
C is incorrect. Birk Co. purchased 30% of the outstanding common stock of Sled. Birk Co. is presumed to have significant influence over Sled and must account for this investment using the equity method. Under the equity method, any excess paid over the fair value of the net assets is considered goodwill. The total purchase price paid by Birk was $200,000 and the fair value of the net assets was $180,000 ($600,000 × 30%). Goodwill would be the difference between $200,000 and the $180,000. Goodwill is $20,000.
D is incorrect. Birk Co. purchased 30% of the outstanding common stock of Sled. Birk Co. is presumed to have significant influence over Sled and must account for this investment using the equity method. Under the equity method, any excess paid over the fair value of the net assets is considered goodwill. The total purchase price paid by Birk was $200,000 and the fair value of the net assets was $180,000 ($600,000 × 30%). Goodwill would be the difference between $200,000 and the $180,000. Goodwill is $20,000.
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