- On January 1, 20X1, Pepper purchased 90% interest in Salt for $900K. At the time of the purchase, Salts assets and liabilities were equal to book value except for Inventory, Building and Land (which had fair values in excess of book value of $30K, $70K and $100K respectively). Net Asset BV at the time of purchase was $450K. Included in the $900K purchase price was a covenant not to compete. The convent was value at $25K and is for a two year period. At the time of the purchase, it was determined that the all of Salts depreciable assets had a remaining 5 year life.

The following occurred during the year:

Pepper sold inventory with an originally cost of $250K to Salt for $375K. Salt sold 80% to a third party for $300K and had 20% of the inventory remaining at the end of the year

On January 1, 20X1 Salt borrowed $200K from Pepper at 5% interest. Salt paid zero down on the principle during the year. However, Salt paid $7K of the interest and had a payable to Pepper at year end for the remaining difference. Pepper had a corresponding receivable on its books at the end of the year

On January1, 20X1, Salt sold equipment (that was originally purchased for $120K and had an associated depreciation of $40K). Salt sold the equipment to Pepper for $90K. At the time of sale, it was determined that the equipment had a five year life remaining

Salt paid Pepper $75K for accounting and tax services during the year. Pepper incurred $40K in costs providing those services to Salt.

a- How much of the differential will be allocated to Goodwill?