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

---

Definitions:

Amortize

The gradual reduction of a debt over a period of time through regular payments of principal and interest sufficient to pay off the debt by maturity.

GAAP

Generally Accepted Accounting Principles, a set of accounting standards and procedures used in the United States to guide the recording and reporting of financial information.

Intangibles

Intangibles refer to non-physical assets that have value, such as patents, copyrights, trademarks, and goodwill.

Internally Developed

Refers to assets or processes that a company develops using its own resources and without external acquisition.