Simple price zone analysis. Flower Company is considering the cash purchase of 100% of the outstanding stock of Vase Company. The terms are not set, and alternative prices are being considered for negotiation. The balance sheet of Vase Company shows the following values:
|
Assets |
Liabilities and Equity |
||
|
Cash equivalents |
$60,000 |
Current liabilities |
$60,000 |
|
Inventory |
120,000 |
Common stock ($5 par) |
100,000 |
|
Land |
50,000 |
Paid in capital in excess of par |
150,000 |
|
Building (net) |
200,000 |
Retained earnings |
120,000 |
|
Total assets |
$430,000 |
Total liabilities and equity |
$430,000 |
Appraisals reveal that the inventory has a fair value of $160,000 and that the land and building have fair values of $100,000 and $300,000, respectively. The questions to be answered concern the price to be paid for Vase’s common stock:
1. Above what price would goodwill be recorded?
2. Below what price would fixed assets be recorded at less than full fair value?
3. Below what price would an extraordinary gain be recorded?