Answer:
a. $700,000.
Explanation:
20,000,000 x 35% = 7,000,000
purchase cost: 7,000,000
nor goodwill or excess of value should be recognized.
But, if the face value is 15,000,000 then:
15,000,000 x 35% = 5,250,000
we recognize a goodwill of 1,750,000
which will be amortized over 5 year thus:
1,750,000 / 5 = 350,000
For the income of Frenton it will recognize the proportion of the net income and subtract the amortization on the goodwill.
3,000,000 x 35% = 1,050,000
amortization <u> (350,000) </u>
<em>income from Frenton 700,000</em>
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