On July 31, 2020, Crane Company paid $2,750,000 to acquire all of the common stock of Conchita
Question:
On July 31, 2020, Crane Company paid $2,750,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Crane. Conchita reported the following balance sheet at the time of the acquisition.
Current assets | | $890,000 | | Current liabilities | | $580,000 |
---|---|---|---|---|---|---|
Noncurrent assets | | 2,450,000 | | Long-term liabilities | | 480,000 |
Total assets | | $3,340,000 | | Stockholders’ equity | | 2,280,000 |
| | | | Total liabilities and stockholders’ equity | | $3,340,000 |
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,480,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information.
Current assets | | $430,000 | |
Noncurrent assets (including goodwill recognized in purchase) | | 2,370,000 | |
Current liabilities | | (600,000 | ) |
Long-term liabilities | | (400,000 | ) |
Net assets | | $1,800,000 | |
Finally, it is determined that the fair value of the Conchita Division is $1,850,000.
Introduction to Financial Accounting
ISBN: 978-0133251036
11th edition
Authors: Charles Horngren, Gary Sundem, John Elliott, Donna Philbrick