Carsen's Centre, Inc. has $2.85 million in net working capital. The firm has fixed assets with a book value of $31.67 million and a market value of $33.98 million. Krystal's is buying Carsen's Centre, Inc. for $38.4 million in cash. The acquisition will be recorded using the purchase accounting method. What is the amount of goodwill that Krystal's will record on their balance sheet as a result of this acquisition?

Question

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The correct answer is A.The amount of goodwill that Krystal's will record on their balance sheet as a result of this acquisition is $1.57 million. This is calculated as the difference between the purchase price of $38.4 million and the fair value of the net assets acquired, which is $36.83 million ($31.67 million + $33.98 million - $2.85 million).