Question

Lake Incorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values of acquired assets and liabilities were:Book Value Fair ValueCurrent assets (net) $130,000 $125,000Property, plant, equip. (net) 600,000 750,000Liabilities 150,000 175,000Lake would record goodwill of:a. $ 0.b. $ 75,000.c. $445,000.d. $250,000.

Answer 1

Answer:

d. $250,000.

Explanation:

In order to calculate the expense of the goodwill, we must first calculate the net asset's fair value shown below:

The fair value of net asset = The fair market value of total assets - the fair market value of liabilities

= $125,000 + $750,000 - $175,000

= $700,000

And, the purchase value of all outstanding stocks is $950,000

So, the goodwill would be  

= $950,000 - $700,000

= $250,000