Evenbeck Company purchased Ferguson Company for $500,000 cash.The fair market value of Ferguson's assets was $320,000 and the company had no liabilities.Which of the following choices would reflect the purchase on Evenbeck's financial statements?

Question

Quizplus · Accepted Answer

Since Evenbeck paid $500,000 cash for Ferguson, the Cash account would decrease by $500,000. The assets acquired from Ferguson were worth $320,000, so Evenbeck would record a $320,000 increase to their Total Assets account. The difference of $180,000 ($500,000 - $320,000) would be recorded as Goodwill, a type of intangible asset, to reflect the premium Evenbeck paid above the fair market value of Ferguson's assets. There are no liabilities assumed in this transaction, so there would be no change to Evenbeck's Total Liabilities account.

Evenbeck Company Purchased Ferguson Company for $500,000 Cash