LEO Inc. acquired a 60% interest in MARS Inc. on January 1, 2019 for $400,000. Unless otherwise stated, LEO uses the cost method to account for its investment in MARS Inc. On the acquisition 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 undervalued inventory. $40,000 to undervalued equipment. (to be amortized over 20 years) The following took place during 2019: MARS reported a net income and declared dividends of $25,000 and $5,000 respectively. LEO's December 31, 2019 inventory contained an intercompany profit of $10,000. LEO's net income was $75,000. The following took place during 2020: MARS reported a net income and declared dividends of $36,000 and $6,000 respectively. MARS' December 31, 2020 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 on January 1, 2019 would be:

• $120,000.

• $200,000.

• $296,667.

• $130,000.