In 2015, a Company Purchased a Small Business for $250,000

question 31

Multiple Choice

In 2015, a company purchased a small business for $250,000. The market value of the small business's assets was $400,000, and the market value of the liabilities was $200,000. The company recorded goodwill of $50,000 at the time of acquisition. At the end of 2016, it measured the goodwill and found it had a remaining fair value of only $20,000. At year-end 2016, the company will:

• A)record a loss on sale of assets.
• B)record an impairment loss.
• C)record accumulated depletion.
• D)record a gain in goodwill.

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Definitions:

Average Total Assets

The mean value of all the assets a company owns, calculated by adding the beginning and ending total asset balances during a period and dividing by two.

Earnings Activities

Activities that generate income for a business, including operations, sales, and investments.

Revenues

The overall sum of money a company earns from selling products or delivering services over a specific time frame.

Expenses

The economic costs that a business incurs through its operations to earn revenue.