fair value accounting for goodwill. Under FAS141R, determine the amount of Goodwill that "the acquiring company" enters on its balance sheet in the following situation:
Acquiring Corporation is acquiring the Target Company, Inc. in a merger. Both companies are publicly listed. Target's market valuation in the merger is $10.0 billion, and its equity value on its balance sheet before any adjustments is $6.5 billion. During the merger process, Target's inventories will be written down by $500 million, and its receivables will be written down by $400 million. On the other hand, under fair value accounting, its plant and equipment will increase in value by $1.1 billion. Its patents and trademarks, however, will decrease in value by $400 million.
A) What is the new equity value of Target on its balance sheet?
B) How much goodwill will Acquiring Company enter on its balance sheet as a result of this merger?
C) If the prevailing market value of Target was $7.0 billion on the NASDAQ before the merger announcement, what is the premium over market value that Acquiring Co paid for Target in dollars?
D) and percent?
You may encounter a similar problem on the Midterm Exam.