Asked by
Armando Perez
on Nov 30, 2024Verified
On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
20192020 Net Income $60,000$80,000 Dividends $9,000$14,000\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 9 } & \mathbf { 2 0 2 0 } \\\hline \text { Net Income } & \mathbf { \$ 6 0 , 0 0 0 } & \mathbf { \$ 8 0 , 0 0 0 } \\\hline \text { Dividends } & \$ 9,000 & \$ 14,000 \\\hline\end{array} Net Income Dividends 2019$60,000$9,0002020$80,000$14,000 Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
Assuming that Hanson had no recorded goodwill prior to January 1, 2019, what would be the amount of goodwill appearing on Hanson's December 31, 2020 Consolidated Balance Sheet?
A) $75,000
B) $136,500
C) $195,000
D) $209,900
Goodwill
An intangible asset that represents the excess value paid for a company over its net assets at the time of acquisition, reflecting attributes like brand reputation, customer relations, and intellectual property.
Voting Shares
Shares that give the shareholder the right to vote on company matters, such as electing directors or approving acquisitions, indicating a degree of control in the company.
Retained Earnings
The portion of net income left over for the business after it has paid out dividends to its shareholders.
- Explain the consolidation process including goodwill calculation and impairment.
Verified Answer
BE
Learning Objectives
- Explain the consolidation process including goodwill calculation and impairment.