Question

Nash Company acquired Seel Corporation through an exchange of common shares. All of Seel's assets and liabilities were immediately transferred to Nash. Nash's common stock was trading at $25 per share at the time of the exchange. The total par value of Nash's stock outstanding before and after the acquisition was $750,000 and $840,000, respectively. Nash's additional paid-in capital before and after the acquisition were $200,000 and $560,000, respectively.

Based on the preceding information, what is the fair value of Seel's net assets if goodwill of $20,000 is recorded in the acquisition?
A) $430,000
B) $470,000
C) $540,000
D) $580,000

Answer 1

The fair value of Seel's net assets, with goodwill recorded, is $430,000.

Step-by-step explanation:

To calculate the fair value of Seel's net assets, we need to determine the total value of Nash Company's stock before and after the acquisition. The additional paid-in capital represents the amount paid by shareholders above the par value of the stock. By subtracting the par value from the total stock value, we can calculate the additional paid-in capital.

Before the acquisition, the total stock value was $750,000 (par value) + $200,000 (additional paid-in capital) = $950,000. After the acquisition, the total stock value was $840,000 (par value) + $560,000 (additional paid-in capital) = $1,400,000.

The difference in stock value before and after the acquisition is $1,400,000 - $950,000 = $450,000. This represents the fair value of Seel's net assets before accounting for goodwill.

Since goodwill was recorded as $20,000 in the acquisition, the fair value of Seel's net assets is $450,000 - $20,000 = $430,000.