Consider the following balance sheets ($ in millions):

Company A paid $90 million to Company B stockholders for all their stock. The “fair value” of the plant assets of Company B is $40 million. The fair value of cash and inventories is equal to their carrying amounts. Companies A and B continued to keep separate books.
1. Prepare a tabulation showing the balance sheets of companies A and B, intercompany eliminations, and the consolidated balance sheet immediately after the acquisition.
2. Suppose that $50 million instead of $40 million of the total purchase price of $90 million could logically be assigned to the plant assets. How would the consolidated accounts be affected?
3. Refer to the facts in requirement 2. Suppose Company A had paid $100 million instead of $90 million. State how your tabulation in requirement 2 wouldchange.

  • CreatedFebruary 20, 2015
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