Reference no: EM13130979
On January 3, 2011, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information about Gainsville's assets and liabilities:
Book Value Fair Value
Buildings (10 year life) 400,000 500,000
Equipment ( 5 year life) 1,000,000 1,300,000
Franchises (8 year life) 0 400,000
For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired.
a) What is the amount of goodwill associated with the investment?
b) For 2011, what is the total amount of excess amortization for Austin's 25% investment in Gainsville?
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