The Grant Company purchased the Lee Company for $600,000 cash. The fair market value of Lee's assets was $520,000, and the company had $40,000 in liabilities. Which of the following choices would reflect the purchase on Grant's financial statements?

Question

Quizplus · Accepted Answer

The purchase will decrease cash by $600,000, increase "Lee's Assets" by $520,000 (the assets' fair value), increase goodwill by $120,000 (the difference between the purchase price and the fair value of Lee's net assets), and increase liabilities by $40,000. The purchase is reported as a cash outflow for investing activities.

The Grant Company Purchased the Lee Company for $600,000 Cash