The following balance sheets were reported on January 1, 2016, for Wood Company and Rose Company: Wood Rose Cash $ 150,000 $ 30,000 Inventory 450,000 150,000 Equipment (net) 1,320,000 570,000 Total $1,920,000 $750,000 Total liabilities $ 450,000 $150,000 Common stock, $20 par value 600,000 300,000 Other contributed capital 375,000 105,000 Retained earnings 495,000 195,000 Total $1,920,000 $750,000 Required: Appraisals reveal that the inventory has a fair value $180,000, and the equipment has a current value of $615,000. The book value and fair value of liabilities are the same. Assuming that Wood Company wishes to acquire Rose for cash in an asset acquisition, determine the following cutoff amounts: The purchase price above which Wood would record goodwill. The purchase price at which Wood would record a $50,000 gain. The purchase price below which Wood would obtain a “bargain.” The purchase price at which Wood would record $75,000 of goodwill
The following balance sheets were reported on January 1, 2016, for Wood Company and Rose Company: Wood Rose Cash $ 150,000 $ 30,000 Inventory 450,000 150,000 Equipment (net) 1,320,000 570,000 Total $1,920,000 $750,000 Total liabilities $ 450,000 $150,000 Common stock, $20 par value 600,000 300,000 Other contributed capital 375,000 105,000 Retained earnings 495,000 195,000 Total $1,920,000 $750,000 Required: Appraisals reveal that the inventory has a fair value $180,000, and the equipment has a current value of $615,000. The book value and fair value of liabilities are the same. Assuming that Wood Company wishes to acquire Rose for cash in an asset acquisition, determine the following cutoff amounts: The purchase price above which Wood would record goodwill. The purchase price at which Wood would record a $50,000 gain. The purchase price below which Wood would obtain a “bargain.” The purchase price at which Wood would record $75,000 of goodwill
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
The following
|
|
Wood |
|
Rose |
|
Cash |
$ 150,000 |
|
$ 30,000 |
|
Inventory |
450,000 |
|
150,000 |
|
Equipment (net) |
1,320,000 |
|
570,000 |
|
Total |
$1,920,000 |
|
$750,000 |
|
|
|
|
|
|
Total liabilities |
$ 450,000 |
|
$150,000 |
|
Common stock, $20 par value |
600,000 |
|
300,000 |
|
Other contributed capital |
375,000 |
|
105,000 |
|
|
495,000 |
|
195,000 |
|
Total |
$1,920,000 |
|
$750,000 |
Required:
Appraisals reveal that the inventory has a fair value $180,000, and the equipment has a current value of $615,000. The book value and fair value of liabilities are the same. Assuming that Wood Company wishes to acquire Rose for cash in an asset acquisition, determine the following cutoff amounts:
- The purchase price above which Wood would record
goodwill . - The purchase price at which Wood would record a $50,000 gain.
- The purchase price below which Wood would obtain a “bargain.”
- The purchase price at which Wood would record $75,000 of goodwill.
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