C is corrent. Wall Co. purchased 100% of the stock of Hart Corp. for $860,000. The amount of goodwill that should be reported on the September 30, year 2 balance sheet would be the amount paid in excess of the FV of the net identifiable assets. The FV of the net assets would be calculated by taking the FV of the assets and subtracting the FV of the liabilities. The FV of the net assets would be $840,000 – 140,000 = 700,000. Goodwill will equal
A is incorrect because it incorrectly subtracts the net asset carrying value from the consideration paid ($860,000 - ($800,000 - $180,000) = $240,000) rather than subtracting the net asset fair value from the consideration paid.
B is incorrect because it subtracts the fair value of the assets from the consideration transferred ($860,000 - $840,000 = $20,000), rather than subtracting the fair value of the net assets from the consideration transferred.
D is incorrect because goodwill is equal to the consideration paid less the fair value of the net identifiable assets, not the carrying value of the liabilities.
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