Question

Petra Corporation purchased all of the outstanding shares of Stuckey Corporation for 25,000,000. Stuckey's assets and liabilities at the date of acquisition are as follows:

Current assets: Fair value6,500,000, Book value 8,000,000
Plant assets: Fair value60,000,000, Book value 90,000,000
Current liabilities: Fair value (4,000,000), Book value (4,000,000)
Noncurrent liabilities: Fair value (67,000,000), Book value (69,000,000)

Stuckey has previously unreported intangibles, meeting the criteria for capitalization, with a fair value of35,000,000. The gain on acquisition is:

Answer 1

The gain on acquisition for Petra Corporation is calculated by subtracting the purchase price from the fair value of Stuckey's intangibles, resulting in a positive gain of 10,000,000.

Step-by-step explanation:

The gain on acquisition for Petra Corporation after purchasing Stuckey Corporation can be calculated by determining the difference between the fair value of Stuckey's intangibles and their identified liabilities against the purchase price. The price paid for Stuckey was 25,000,000, and the fair value of their previously unreported intangible assets is 35,000,000. Since the current liabilities have a fair value and book value of 4,000,000 that effectively cancels each other out, they do not affect the acquisition price.

Thus, the gain on acquisition would be the intangible assets' fair value minus the purchase price, which is 35,000,000 - 25,000,000, resulting in a positive gain of 10,000,000.