Answer to Question #32952 in Finance for Karla

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 Value
current assets(net) $130,000 $125,000
Property, Plant, equip(Net) 600,000 750,000
Liabilities 150,000 175,000

Lake would record goodwill of
a. $445,000
B. $250,000
C. $75,000
D. $0

Answer 1

current assets(net) $130,000 $125,000
Property, Plant, equip(Net) 600,000 750,000
Liabilities 150,000 175,000
Lake would record goodwill of
B. $250,000

Goodwill is calculated as the difference of the price for buying the company and its fair value of net assets (assets minus liabilities).
Goodwill = 950,000 - (750,000 + 125,000 - 175,000) =250,000