Lake Incorporated purchased all of the outstanding stock of Huron Company paying $850,000 cash. Lake assumed all of the liabilities. Book values and fair values of acquired assets and liabilities were: $$\begin{array}{l}
\text { Current assets (net) }\
\begin{array} { r r }
\text { Book Value } & \text { Fair Value } \
\hline \$ 130,000 & \$ 125,000 \
600,000 & 750,000 \
175,000 & 175,000
\end{array}
\end{array}$$ Lake would record goodwill of:

Question

Lake Incorporated purchased all of the outstanding stock of Huron Company paying $850,000 cash. Lake assumed all of the liabilities. Book values and fair values of acquired assets and liabilities were: $$\begin{array}{l}
\text { Current assets (net) }\
\begin{array} { r r } 
\text { Book Value } & \text { Fair Value } \
\hline \$ 130,000 & \$ 125,000 \
600,000 & 750,000 \
175,000 & 175,000
\end{array}
\end{array}$$ Lake would record goodwill of:

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair value of net identifiable assets. The fair value of net identifiable assets is $125,000 (current assets) + $750,000 (other assets) - $175,000 (liabilities) = $700,000. Goodwill is $850,000 (purchase price) - $700,000 = $150,000.

Lake Incorporated Purchased All of the Outstanding Stock of Huron