Reference no: EM132952695
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:
2019 2020
Net Income $60,000 $80,000
Dividends $9,000 $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.
Problem 1: What is the amount of goodwill arising from Hanson's January 1, 2019 acquisition?
A.$50,000
B.$80,000
C.$60,000
D.$200,000
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