P Corp Owns 800 Voting Common Shares Out of Q Corp

question 22

Multiple Choice

P Corp. owns 800 voting common shares out of Q Corp.'s 1,000 outstanding voting common shares, which it accounts for using the equity method. On December 31, 2018, the shareholder's equity section of Q Corp. was comprised of $15,000 in common shares and retained earnings with the amount of $450,000. Q Corp. reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31, 2019.
There have been no goodwill impairment losses since acquisition.
On January 1, 2020, P Corp. sold 200 shares of its investment in Q Corp. for $125,000. On January 1, 2019, the investment account had a balance of $420,000. The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life) .
30% to equipment (9 year remaining life) .
What is the amount of Goodwill that arose from P's investment in Q?

• A) Nil
• B) $6,000
• C) $18,000
• D) $36,000

---

Definitions:

Channel Intermediaries

Firms or individuals such as wholesalers, agents, brokers, and retailers who help move a product from the producer to the consumer or business user.

Financing

The act of providing funds for business activities, making purchases, or investing.

Logistical Function

The activities involved in obtaining, producing, and distributing materials and products in the proper place and condition at the right time.

Channel Intermediaries

Firms or individuals such as wholesalers, agents, and retailers who serve as a link between manufacturers and consumers in the distribution process.