Strong Company Has Had Poor Operating Results in Recent Years

question 24

Multiple Choice

Strong Company has had poor operating results in recent years and has a $160,000 net operating loss carry-forward. Leader Corp. pays $700,000 to acquire Strong and is optimistic about its future profitability potential. The book value and fair value of Strong's identifiable net assets is $500,000 at date of acquisition. Strong's tax rate is 30% and Leader's tax rate is 40%. What is goodwill resulting from this business combination?

• A) $40,000.
• B) $88,000.
• C) $104,000.
• D) $152,000.
• E) $248,000.

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Definitions:

Availability Heuristic

A mental shortcut that relies on immediate examples that come to a person's mind, influencing their perception of a topic's prevalence or importance.

Framing

The process of shaping the perception or presentation of information in a way that influences judgment and decision-making.

Algorithms

Step-by-step procedures or formulas for solving problems or completing tasks, often used in computer programming and mathematics.

Representativeness Heuristic

A cognitive shortcut where the likelihood of an object belonging to a category is judged based on how representative it is of that category.