to Evenbeck Company purchased Ferguson Company for 500000 ca

to Evenbeck Company purchased Ferguson Company for $500.000 cash. The fair market value of Ferguson\'s as choices would reflect the purchase on Evenbeck\'s financial statements? Exp.Net Inc. Equity Rev Cash Flow Cash Low\'sGoodwill Assets (500,000) IA A)! (500.000)? 500.000 lt! NA |=| NA ?NA-NA-NA | ?) | (500.000) |ti 320,000-+ | NA i =I (180.000) | NA |-| 180.000 l = I (180.000) | (500,000) (JA C)1 (500.000) i +1 320.000 i + | 180.000 |# | NA | NA-1 NA-\' I NA ,1 (500,000)1+1 320.000 i +1 180,000 i=1 NA | NA- NA - NA i (500.000) IA O choice A Choice B Choice C O choice D

Solution

The Answer is Choice D.

Explanation:-
Cash Paid for investment in Ferguson Co. = $500,000
Fair value of assets of Ferguson = $320,000
Goodwill = $500000 - $320000 = $180,000
(Good will is calculated when the amount paid is in excess of the fair value of the assets of the subsidiary company. The difference of the payment and fair market value of assets is known as goodwill.)

Further this type of transaction is shown in the Cash Flow Statement under the heading \"Cash Flow from Investing Activities\" and as it is a cash outflow, it is to be shown as negative figure.
So the Equation of Choice D is exactly fulfilling the conditions of the investing transaction in the subsidiary company.
Here is Cash Outflow hence (500,000)
Assets is received hence 320,000
Goodwilll is calculated and reported in balance sheet hence 180,000
Cash Flow in Investing Activities, there is outflow hence (500,000) IA