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:
Lake would record goodwill of:

Question

Quizplus · Accepted Answer

Since Lake paid $850,000 cash for the acquisition and the fair value of the acquired assets and liabilities was equal to their book value, there is no gain or loss on the acquisition. Therefore, the purchase price of $850,000 equals the fair value of the net assets acquired by Lake. As a result, there is no negative goodwill and no need to write up the assets beyond the purchase price. Hence, the goodwill would be $150,000 ($850,000 - $700,000).

Lake Incorporated Purchased All of the Outstanding Stock of Huron