Cozzi Company Is Being Purchased and Has the Following Balance

question 12

Multiple Choice

Cozzi Company is being purchased and has the following balance sheet as of the purchase date: $\begin{array}{llll}\text { Current assets } & \$ 200,000 & \text { Liabilities } & \$ 90,000 \\\text { Fixed assets } & 180,000 & \text { Equity } & 290,000\\\text { Total }&\$380,000&\text { Total }&\$380,000\end{array}$ The price paid for Cozzi's net assets is $500,000. The fixed assets have a fair value of $220,000, and the liabilities have a fair value of $110,000. The amount of goodwill to be recorded in the purchase is ____.

• A) $0
• B) $150,000
• C) $170,000
• D) $190,000

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Definitions:

Adverse Selection

A situation in insurance and finance where those with higher risks are more likely to seek insurance or loans, leading to an imbalanced pool that can raise costs for insurers or lenders.

High-Quality Used Car

A pre-owned vehicle that has been maintained well and often includes features of newer models, indicating low mileage and minimal wear.

Warranty

A guarantee provided by a seller or manufacturer concerning the condition of a product and the promise of repair or replacement within a specified period.

Deductible

The amount an insured individual must pay out of pocket before an insurance company pays a claim.