Action Corp has agreed to pay $45,000 to acquire 100 percent of the shares of Sub Co. Action Corp. believes that the fair value of Sub Co's assets, liabilities, and reserves at the date of acquisition are as follows:

Assets $100,000.00

Liabilities and reserves $ 60,000.00

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. However, Action Co. then decides to overstate reserves related to Sub Co. by $10,000 at the time of acquisition and to overstate goodwill by a corresponding amount.

29. How much goodwill will be recorded in respect of the acquisition of Sub Co if Action overstates reserves by $10,000?

1. Zero

2. $ 5,000

3. $ 15,000

4. $ 40,000

5. $100,000