Purity Company acquired all of the net assets of Soltice Company on November 1, 20x1. As a result Soltice became a 100% percent owned subsidiary of Purity. After allocating the cost of the net acquisition to the net assets of Soltice, the remainder ($100,000) was reported in the December 31, 20x1 balance sheet as goodwill. During 20x1 Purity determined that the Soltice office building was undervalued by $40,000 when its provisional amount was determined. Purity depreciates the building using the straightline method over a twentyyear period, beginning November 1, 20x1. Required: Address the following questions assuming a tax rate of 40%.

a. At what amount will goodwill now be adjusted to?

b. Under current accounting practice, how will Soltice treat the $40,000 change? Explain and show the journal entry (ies), if any that must be recorded in 20x2.

c. Under the proposed exposure draft issued as a part of the FASB s Simplification Initiative, how will Soltice treat the $40,000 change? Explain and show the journal entry (ies) that would be recorded in 20x2.