The Early Corp

question 26

Multiple Choice

The Early Corp. buys Farley Corp., for a total purchase price of $250 million. At the time of the acquisition, Farley's total identifiable assets had a fair value of $200 million. Their historical cost to Farley was $180 million. Farley's identifiable liabilities had a fair value which was the same as their historical cost of $120 million. The goodwill that should be recorded at the time of the purchase is

• A) $50 million
• B) $70 million
• C) $170 million
• D) $190 million

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Definitions:

Straight-Line Depreciation

Method that allocates the depreciable cost of an asset in equal periodic amounts over its useful life

Book Value

The net value of a company's assets as found on its balance sheet, calculated by subtracting total liabilities from total assets.

Depreciable Asset

An asset that loses value over time due to wear and tear or obsolescence, and its cost is allocated over its useful life through depreciation.

Acquisition Cost

The total cost incurred to acquire an asset, including purchase price and any additional expenses necessary to get the asset ready for its intended use.