IOU Inc Purchased All of the Outstanding Common Shares of UNI

question 3

Multiple Choice

IOU Inc. purchased all of the outstanding common shares of UNI Inc. for $800,000. On the date of acquisition, UNI's assets included $2,000,000 of Inventory and Land with a Book value of $120,000.UNI also had $1,400,000 in Liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's Land, which was estimated to have a fair market value which was $50,000 higher than its book value.
Parent Company acquires Subsidiary Company's common shares for cash. On the date of acquisition, Subsidiary had Goodwill of $100,000 on its books. Which of the following statements regarding Subsidiary's Goodwill on the date of acquisition is correct?

• A) Subsidiary's goodwill is considered as an identifiable asset and should therefore be included in Parent Company's Acquisition Differential calculation.
• B) Subsidiary's goodwill is considered as an identifiable asset and should therefore be excluded from Parent Company's Acquisition Differential calculation.
• C) Subsidiary's goodwill is not considered as an identifiable asset and should therefore be excluded from Parent Company's Acquisition Differential calculation.
• D)Subsidiary's goodwill is not considered as an identifiable asset and should therefore be included in Parent Company's Acquisition Differential calculation.

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Definitions:

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