Detecting Accounting Fraud 1st Edition by Cecil Jackson

Exercise 18

Action Co. has agreed to pay $45,000 to acquire 100 percent of the shares of Sub Co. Action Co. believes that the fair value of Sub Co.'s assets, liabilities, and reserves at the date of acquisition are as follows:
Action Co. believes that based on Sub Co.'s future earnings potential, it is prepared to pay $5,000 more for Sub Co. than its net asset value. Action Co. decides to overstate reserves related to Sub Co. by $10,000 at the time of acquisition and to overstate goodwill by a corresponding amount.
How much goodwill will be recorded in respect of the acquisition of Sub Co.?