The Following Information Pertains to Questions

question 6

Multiple Choice

The following information pertains to questions
LEO Inc.acquired a 60% interest in MARS Inc.on January 1,2008 for $400,000.LEO uses the Cost method to account for its investment MARS Inc.On that date,MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively.The acquisition differential was allocated as follows:
$80,000 to inventory.
$40,000 to equipment (To be amortized over 20 years)
The following took place during 2008:
MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
LEO's December 31,2008 inventory contained an intercompany profit of $10,000.
LEO's net income was $75,000.
The following took place during 2009:
MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
MARS' December 31,2009 inventory contained an intercompany profit of $5,000.
LEO's net income was $48,000.
Both companies are subject to a 25% tax rate.All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%.
-The amount of goodwill arising from this combination would be

• A)$120,000.
• B)$130,000.
• C)$296,667.
• D)$200,000.

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