Carson Company Purchased 100% of the Outstanding Common Shares of Towson

question 23

Multiple Choice

Carson Company purchased 100% of the outstanding common shares of Towson Company on December 31, 2011 for $170,000. At that date, Towson had $100,000 of outstanding common stock and retained earnings of $30,000. It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $20,000 and the carrying value of the inventory exceeded its fair value by $10,000. The capital assets had a remaining useful life of eight years as of the acquisition date and have no salvage value. Inventory turns over four times a year. Both companies pay tax at the rate of 30%. It is now 2014 and Carson has been very pleased with how profitable its investment in Towson has been. On Carson's consolidated financial statements at December 31, 2014, what balance should be reported for goodwill?

• A)$30,000.
• B)$33,000.
• C)$19,000.
• D)$40,000.

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Definitions:

Lumbar

Pertaining to the lower part of the back or the five vertebrae in the lower spine.

Cervical

Pertaining to the neck or cervix in the human body.

Atlas

The first cervical vertebra of the spine, supporting the skull and enabling head movements.