Reference no: EM1361544
On January 3, 2003, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,000,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $6,000,000. Gainesville had franchise agreements with a fair market value of $400,000. Austin gathered the following information about Gainsville's assets and liabilities:
Book Value Fair Market Value
Buildings 10 year life 400,000 500,000
Equipment 5 year life 1,000,000 1,300,000
For all other assets and liabilities, book value and fair market value were equal.
5. What is the amount of goodwill associated with the investment?
A) $300,000
B) $500,000
C) $ 0
D) $100,000
E) $400,000
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