In 2011, First Company Purchased Second Company for $16,000,000 Cash

question 71

Multiple Choice

In 2011, First Company purchased Second Company for $16,000,000 cash. At the time of purchase Second Company had $18,500,000 in assets and liabilities of $11,000,000. The 2011 balance sheet for First Company should show goodwill of:

• A)$10,500,000.
• B)$8,500,000.
• C)$3,500,000.
• D)$0.

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Definitions:

Receivable Turnover

A financial metric indicating the efficiency of a company in collecting its accounts receivable or the effectiveness of its credit policy.

Inventory Turnover

A metric representing the frequency at which a business's stock is sold and restocked within a given timeframe, reflecting how effectively inventory is handled.

Current Ratio

An indicator of how well a company can handle its immediate debts, assessing its ability to cover obligations maturing in one year or less.

Acid-test Ratio

A financial metric that measures a company's ability to cover its short-term liabilities with its most liquid assets, excluding inventory.