On January 1 2019 Glenville Co acquired an 80 interest in Ac

On January 1, 2019, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. There is no active trading market for Acron’s stock. The fair value of Acron\'s net assets was $600,000 and Glenville accounts for its interest using the acquisition method. 1.) Determine the amount of goodwill to be recognized in this acquisition. 2.) Determine the value assigned to the noncontrolling interest as of the date of the acquisition.

Solution

As the parent paid 500,000 to acquire 80% of the subsidary, Non controlling interest = 500,000 / 80% * 20%

= 125,000

1.

Fair value of subsidary = Acquision price + Non controlling interest

= 500,000 + 125,000

= 625,000

Fair value of subsidary net assets = 600,000

Goodwill = Fair value of subsidary - Fair value of subsidary net assets

= 625,000 - 600,000

= 25,000

2.

Value assigned to the noncontrolling interest as of the date of the acquisition = 125,000