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 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 |
|
|
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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education