Asked by Harry Singh on Jul 20, 2024
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Suppose Parrot Mfg. purchases Clint Enterprises for $120 million in cash. For purposes of the acquisition, Clint's fixed assets were appraised at $95 million. Further, assume Clint Enterprises has working capital of $15 million and no long-term debt. If Parrot Mfg. uses the purchase accounting method to account for the acquisition, goodwill of ______________ is created.
A) $10 million
B) $15 million
C) $25 million
D) $35 million
E) $80 million
Purchase Accounting Method
An accounting method used in mergers and acquisitions to allocate the purchase price to the acquired assets and liabilities.
Fixed Assets
Tangible assets, such as buildings and machinery, used in the operation of a business and not expected to be consumed or converted into cash in the short term.
Goodwill
An intangible asset that arises when a company acquires another business for more than the fair value of its separable net assets.
- Develop an understanding of the fiscal implications and the mathematics entailed in mergers and acquisitions.
- Analyze the accounting methods and treatment of goodwill in mergers and acquisitions.
Verified Answer
Learning Objectives
- Develop an understanding of the fiscal implications and the mathematics entailed in mergers and acquisitions.
- Analyze the accounting methods and treatment of goodwill in mergers and acquisitions.
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