On July 31, 2014, Mexico Company paid $3,065,200 to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition.
| Current assets |
|
$896,800 |
|
Current liabilities |
|
$653,400 |
| Noncurrent assets |
|
2,739,000 |
|
Long-term liabilities |
|
557,800 |
| Total assets |
|
$3,635,800 |
|
Stockholders' equity |
|
2,424,600 |
|
|
|
|
Total liabilities and stockholders' equity |
|
$3,635,800 |
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,779,600. 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, 2014, Conchita reports the following balance sheet information.
| Current assets |
|
$451,900 |
|
| Noncurrent assets (including goodwill recognized in purchase) |
|
2,457,100 |
|
| Current liabilities |
|
(736,500 |
) |
| Long-term liabilities |
|
(526,400 |
) |
| Net assets |
|
$1,646,100 |
|
It is determined that the fair value of the Conchita Division is $1,851,200. The recorded amount for Conchita's net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value $156,700 above the carrying value.