Castle Ltd

Multiple Choice

Castle Ltd. acquired 100% of Bello Ltd. At the time of acquisition, Bello had assets with a tax value of $700,000, carrying value of $800,000, and fair value of $950,000. Both Castle and Bello are subject to a tax rate of 40%. What is the effect of recognizing the deferred tax in accounting for the acquisition?

A) Increase in liabilities and goodwill
B) Decrease in liabilities and goodwill
C) Decrease in liabilities and increase in goodwill
D) Increase in liabilities and decrease in goodwill