What is Rapid Shine’s net assets at the date of acquisition? And Should this acquisition be approved?
What is Rapid Shine’s net assets at the date of acquisition? And Should this acquisition be approved?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Quick Glow, Inc. acquired 100% of the voting common stock of Rapid Shine, Inc. by transferring the following consideration to Rapid Shine’s shareholders:
Quick Glow
| Cash | $200,000 |
|---|---|
| 10,000 new shares of | $100,000 (par) |
| Quick Glow’s $20 par common stock | |
| (which is less than 2% of Quick Glows Outstanding stock) |
In addition, Quick Glow paid $17,000 direct cost of carrying out the combination.
At the end date of the acquisition, Quick Glow’s common stock was selling in an active market for $25 per share. Also, at the date of the acquisition, Rapid Shine had the following assets and liabilities with the book values and fair values shown:
| Book Value | Market Value | |
| $25,000 | $25,000 | |
| Property and Equip | $120,00 | $150,00 |
| Land | $75,000 | $105,000 |
| Other Assets | $60,000 | $60,000 |
| Total Assets | $280,000 | $340,000 |
| Accounts Payable | $250,000 | $250,00 |
| Other Short-term Debt | $20,000 | $20,000 |
| Long-Term Debt | $45,000 | $45,000 |
| Total Liabilities | $315,000 | $315,000 |
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What is Rapid Shine’s net assets at the date of acquisition? And Should this acquisition be approved?
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