Par Company acquires 100% of the common stock of Sub Company for an agreedupon price of $900,000. The book value of the net assets is $700,000, which includes $50,000 of subsidiary cash equivalents. Existing fixed assets have fair values greater than their recorded book values. How will this transaction affect the cash flow statement of the consolidated firm in the period of the purchase, if:a. Par Company pays $900,000 cash to purchase the stock?b. Par Company pays $500,000 cash and signs 5-year notes for $400,000? All Sub Company shareholders receive notes.c. Par Company exchanges only common stock with the shareholders of Sub Company?

Par Company acquires 100% of the common stock of Sub Company for an agreedupon price of $900,000. The book value of the net assets is $700,000, which includes $50,000 of subsidiary cash equivalents. Existing fixed assets have fair values greater than their recorded book values. How will this transaction affect the cash flow statement of the consolidated firm in the period of the purchase, if:a. Par Company pays $900,000 cash to purchase the stock?b. Par Company pays $500,000 cash and signs 5-year notes for $400,000? All Sub Company shareholders receive notes.c. Par Company exchanges only common stock with the shareholders of Sub Company?

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations

Section: Chapter Questions

Problem 38P

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Question

Par Company acquires 100% of the common stock of Sub Company for an agreedupon price of $900,000. The book value of the net assets is $700,000, which includes $50,000 of subsidiary cash equivalents. Existing fixed assets have fair values greater than their recorded book values. How will this transaction affect the cash flow statement of the consolidated firm in the period of the purchase, if:
a. Par Company pays $900,000 cash to purchase the stock?
b. Par Company pays $500,000 cash and signs 5-year notes for $400,000? All Sub Company shareholders receive notes.
c. Par Company exchanges only common stock with the shareholders of Sub Company?

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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