Cheers Acquired 100% of Tapp's Shares for $150,000

question 16

Multiple Choice

$$\begin{array} { | l | r | r | } \hline & \text { Cheers Co. } & \text { Tapp Ltd. } \\\hline \text { Current assets } & \$ 240,000 & \$ 40,000 \\\hline \text { Net capital assets } & \underline { 400,000 } & \underline { 240,000 } \\\hline & \$ \underline { 640,000 } & \$ \underline { 280,000 } \\\hline \text { Current liabilities } & \$ 168,000 & \$ 140,000 \\\hline \text { Long-term debt } & 80,000 & 48,000 \\\hline \text { Share capital } & 360,000 & 50,000 \\\hline \text { Retained earnings } & \underline { 32,000 } & \underline { 42,000 } \\\hline & \$ \underline { 640,000 } & \$ \underline { 280,000 } \\\hline\end{array}$$ Cheers acquired 100% of Tapp's shares for $150,000. On the acquisition date, the fair value of the current assets and the net capital assets of Tapp Ltd. were $104,000 and $216,000, respectively. The fair value of the liabilities equalled their book value. What is the amount of goodwill created in this acquisition?

• A)$(24,000)
• B)$ 0
• C)$18,000
• D)$40,000

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Definitions:

Budget Line

A visual representation showing every possible mix of two products that a consumer is able to purchase with their income, taking into account the cost of these items.

Utility Function

A mathematical representation used in economics to model preferences and satisfaction obtained from consuming goods and services.

Berries

Small, pulpy, and often edible fruits, typically round, brightly colored, sweet or sour, and do not have a stone or pit, although many seeds may be present.

Nuts

Edible seeds of certain plants, enclosed in a hard shell, and often consumed as a nutrient-rich food.