Riddick Co. purchased all of the outstanding stock of Vaako Inc. for $12,000,000. Vaako's book value was $8,500,000. The book values were the same as the fair value with the exception of the following: Patent was undervalued by $2,000,000 and Notes Payable was undervalued by $1,500,000. What is the fair value of Vaako's net assets?
Riddick Co. purchased all of the outstanding stock of Vaako Inc. for $12,000,000. Vaako's book value was $8,500,000. The book values were the same as the fair value with the exception of the following: Patent was undervalued by $2,000,000 and Notes Payable was undervalued by $1,500,000. What is the fair value of Vaako's net assets?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Riddick Co. purchased all of the outstanding stock of Vaako Inc. for $12,000,000. Vaako's book value was $8,500,000. The book values were the same as the fair value with the exception of the following: Patent was undervalued by $2,000,000 and Notes Payable was undervalued by $1,500,000. What is the fair value of Vaako's net assets?
Expert Solution
Step 1: Introduction
To determine the fair value of net assets:
List all assets and liabilities on the company's balance sheet, including tangible and intangible assets, financial assets, and liabilities.
Determine the fair value of each asset and liability, using methods like market prices, appraisals, or valuation models.
Adjust for any undervalued or overvalued assets or liabilities compared to their fair values.
Calculate net assets by subtracting the fair value of liabilities from the fair value of assets.
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