exercises 1 at december 31 2010 the stockholders 39 equity of gost corporation and i 4307628

Exercises

1) At December 31, 2010, the stockholders' equity of Gost Corporation and its 80%-owned subsidiary, Tree Corporation, are as follows:

    Gost       Tree 

Common stock, $10 par value$20,000$12,000

Retained earnings8,0006,000

Totals$28,000$18,000

Gost's Investment in Tree is equal to 80 percent of Tree's book value. Tree Corporation issued 225 additional shares of common stock directly to Gost on January 1, 2011 at $18 per share.

Required:

1. Compute the balance in Gost's Investment in Tree account on January 1, 2011 after the new investment is recorded.

2. Determine the increase or decrease in goodwill from Gost's new investment in the 225 Tree shares. Use four decimal places for the ownership percentage. Assume the fair values of Tree's assets and liabilities are equal to book values.