Reading 16
Intercorporate Investment
Total Liabilities and Shareholder’s Equity
FinQuiz.com
$215,000
$150,000
With respect to C.S. Corp. Fisher Corp. is planning to acquire 100% of the outstanding shares of the former corporation by issuing 2 million of its own equity that has $1 par value and a current market value of $10 million. The pre-acquisition balance sheet information for C.S. Corp. using book values and fair values is illustrated below (exhibit 2). The shareholder’s equity figure included in Fisher Corp’s pre-acquisition balance sheet (exhibit 1) includes $30 million additional paid in capital with the remainder attributable to common stock with a $1 par value. Exhibit 2 C.S. Corp. Pre-Acquisition Balance Sheet using Book Values and Fair Values
Cash Inventory Accounts Receivable Other assets Account Payables Long-Term Debt Net Assets Shareholders’ Equity: Common Stock ($1 par) Additional paid in capital Retained Earnings
C.S. Corp. Book Value ($’000) $4,000 2,500 500 8,000 15,000 2,000 5,000 7,000 22,000
C.S. Corp. Fair Value ($’000)
$4,000 3,500 500 10,500 18,500 2,000 7,000 9,000 27,500
4,500 2,000 1,500
One year following the investment in C.S. Corp., the carrying value of its steel conversion unit is $1,500,000 and fair value is $1,250,000. An in-house analyst estimates the unit’s recoverable amount to be worth $900,000 and the fair value of its identifiable net assets to be worth $1,180,000. The steel conversion unit is an independent reporting unit.
FinQuiz Question ID: 11614
19. The amount of goodwill reported on Fisher Corp.’s balance sheet immediately following the purchase of Tire-Go is closest to: A. $0. B. $15 million. C. $32 million.
