Snowflake Corp -Based on the Information Concerning Snowflake Corp

question 21

Multiple Choice

Snowflake Corp.
Penguin, Inc.acquires 100% of the outstanding shares of Snowflake Corp.for $2,250,000 and accounts for the transaction using the purchase method.Snowflake's balance sheet at the acquisition date is as follows:

Snowflake, Corp.
Balance Sheet
Acquisition Date
$\begin{array}{lrr} & \begin{array}{r}\text { Historical } \\ \text { Cost }\end{array} & \begin{array}{r}\text { Current } \\ \text { Market } \\ \text { Value }\end{array} \\ \text { Assets } & \$ 900,000 & \$ 900,000 \\ \text { Current Assets } & \$ 875,000 & \$ 1,250,000 \\ \text { Depreciable Assets less Accumulated Depreciation } & & \\ \text { Goodwill } & \$ 1,775,000 & \\ \text { Total Assets } & & \\ \text { Liabilities and Equities } & & \\ \text { Liabilities } & \$ 1,100,000 & \$ 1,100,000 \\ \text { Deferred Income Tax Liability } & \$ 125,000 & \$ 125,000 \\ \text { Shareholders' Equity } & \$ 550,000 & \\ \text { Total Liabilities and Equities } & \$ 1,775,000 & \end{array}$


-Based on the information concerning Snowflake Corp.what is the value of the goodwill related to the acquisition?

• A) $1,775,000
• B) $475,000
• C) $2,250,000
• D) $1,325,000

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Definitions:

Historical Cost

Historical cost is the original monetary value of an economic item purchased or incurred, used as a basis for accounting and financial reporting.

Replacement Cost

The current cost of replacing an asset with a similar one at its current market price.

Reorganization

A process aimed at restructuring a company's financial or operational aspects for efficiency or to facilitate a smoother operation.