Fair value of net assets


Problem: On 1/1/03, Park Corp. acquired all of the outstanding common stock of Rose, Inc. by exchanging 600,000 shares of $5 par common stock in a purchase type stock acquisition. Subsequently, Rose was liquidated and its assets and liabilities merged into Park. Park’s common stock had a market price of $50 per share at 1/1/03. The amount of goodwill recorded by Park in connection with this combination was $12, 240,000. Park incurred $600,000 in legal fees and other costs as well as $60,000 in stock issuance costs. Compute both the fair value of Rose’s net assets and the amount of increase in Park’s equity as a result of this combination.

30,000,000 + 600,000 = 30,600,000 Total purchase price
30,600,000 – 12,240,000 = 18,360,000 Fair Value (Park)
3,000,000 + 12,240,000 = 15,240,000 Fair Value (Rose)
29,940,000 increase in equity

Investment in Rose                   30,600,000
    Common stock                       3,000,000
    Paid-in capital                       26,940,000
    Deferred acquisition cost            600,000
    Deferred issuance cost                 60,000

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Accounting Basics: Fair value of net assets
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