Reference no: EM132937921
Parent Inc. purchased 60,000 of Sub Inc's 80,000 outstanding voting shares for $500,000 on January 1, 2020. On the date of acquisition, Sub's common shares and retained earnings were valued at $220,000 and $280,000, respectively. Subs book values approximated its fair values on the acquisition date with the exception of a patent, for which the fair value of the patent was $40,000 less than book value.
On January 2, 2021, Parent sold 10,000 shares of Sub on the open market for $63,000.
Required:
Problem a) What is the amount of goodwill arising from this business combination?
Problem b) What would be the amount of the gain or loss on the sale of the 10,000 shares?
Problem c) Assume instead, that Parent sold these 10,000 shares in the open market for $40,000. What would be the amount of gain or loss?
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