On December 31,20X8,Peak Corporation Acquired 80 Percent of Summit Company's

question 19

Multiple Choice

On December 31,20X8,Peak Corporation acquired 80 percent of Summit Company's common stock for $160,000.At that date,the fair value of the noncontrolling interest was $40,000.Of the $75,000 differential,$10,000 related to the increased value of Summit's inventory,$20,000 related to the increased value of its land,and $25,000 related to the increased value of its equipment that had a remaining life of 10 years from the date of combination.Summit sold all inventory it held at the end of 20X8 during 20X9.The land to which the differential related was also sold during 20X9 for a large gain.At the date of combination,Summit reported retained earnings of $75,000 and common stock outstanding of $50,000.In 20X9,Summit reported net income of $60,000,but paid no dividends.Peak accounts for its investment in Summit using the equity method.
-Based on the preceding information,the amount of goodwill reported in the consolidated financial statements prepared immediately after the combination is:

• A)$0
• B)$32,500
• C)$26,000
• D)$20,000

---

Definitions:

Property Tax Rates

The rate at which property in a particular area is taxed.

Hobby Farms

Small-scale farms operated more for leisure and enjoyment than for profit, often focusing on the cultivation of food for the family or specialty crops.

Percent More

A term used to describe how much one quantity is larger than another as a percentage of the second quantity.

Increased By

A term used to indicate that a quantity is being added to, or grown in value or amount.