How much goodwill is associated with this investment


On January 4, 2008, Bailey Corp. purchased 40% of the voting common stock of Emery Co., paying $3,000,000. Bailey properly accounts for this investment using the equity method. At the time of the investment, Emery's total stockholders' equity was $5,000,000. Bailey gathered the following information about Emery's assets and liabilities whose book values and fair values differed: Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Emery Co. reported net income of $400,000 for 2008 and paid dividends of $200,000 during that year.


book value fair value
Building (20 year life) $1,000,000 $1,800,000

equipment (5 year life) $1,500,000 $2,000,000

franchise(10 year life) 0 $700,000

How much goodwill is associated with this investment?

 

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Accounting Basics: How much goodwill is associated with this investment
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