Apple IncPurchased a 70% Interest in the Banana Company for $490,000

question 8

Multiple Choice

Apple Inc.purchased a 70% interest in the Banana Company for $490,000 on January 1, 2018, when Banana Company had the following stockholders' equity:
$$\begin{array} { l r } \text { Common stock, } \$ 10 \text { par } & \$ 100,000 \\\text { Paid-in capital in excess of par } & 250,000 \\\text { Retained earnings } & 150,000\end{array}$$
At the time of Apple's purchase, Banana Company was an 80% owner of the Carrot Company.Also on that date, Carrot Company has a machine that has a market value in excess of book value of $20,000.There is no difference between book and market value for any Banana Company assets.The goodwill that would result from this purchase is ____.

• A)$184,000
• B)$180,000
• C)$140,000
• D)$126,000

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs — direct materials, direct labor, and both variable and fixed overhead — in the cost of a product.

Variable Costing

A costing method that includes only variable production costs in product cost calculations, used for internal decision-making.

Net Income

The excess of all revenues and gains over all expenses and losses for a specific period of time.

Production

The process of creating goods and services from various resources.