Question 26 Winchester Inc. acquires Target in 1999. Target has a book value of
ID: 2510000 • Letter: Q
Question
Question 26
Winchester Inc. acquires Target in 1999. Target has a book value of $39.5 million and a market value of $60 million. Winchester will pay $80 million in Winchester common stock to acquire all outstanding shares. Balance sheet information for Target includes:
Book Value Fair Value
Accounts Receivable $10.0 million $ 9.5 million
Inventory 14.5 21.5
Fixed Assets 20.1 26.3
Patents 0 19.0
Liabilities (5.1) (5.1)
Total $39.5 million $ 71.2 million
This acquisition was recorded as a pooling of interest; the books of Winchester will include:
A credit to stockholders equity of $71.2 million and debit net assets $71.2 million
Debit Target acquisition of $90 million and credit stockholders equity of $90 million
Debit to patents of $19 million, other net assets of $39.5 million and a credit to cash of $58.5 million
Debit net assets $39.5 million (various asset & liability accounts) and credit stockholders equity $39.5 million
2 points
Question 27
America On-line (AOL) announced the acquisition of Time Warner (TWX) on January 10, 2000. The stock price reaction is shown below. This suggests that:
AOL experience a significant price premium
Time Warner has a substantial price premium, but the market looked unfavorably on AOL
This merger was a disaster for both Time Warner & AOL
There was no price reaction to the merger announcement
2 points
Question 28
Octopus Inc. acquired Guppy in 1999. Guppy has a market value of $70 million. Octopus paid $95 million in Octopus common stock to acquire all outstanding shares. Balance sheet information for Guppy includes:
This acquisition was recorded as a pooling of interest; the books of Octopus will include:
Debit Guppy acquisition for $70 million & credit stockholders' equity for the same amount
Record the patents at their fair value of $26 million
Debit various assets & liabilities for a total $49.5 million & credit stockholders' equity accounts for the same amount
Debit various asset & liabilities for a total $85.2 million & credit stockholders' equity for the same amount
a.A credit to stockholders equity of $71.2 million and debit net assets $71.2 million
b.Debit Target acquisition of $90 million and credit stockholders equity of $90 million
c.Debit to patents of $19 million, other net assets of $39.5 million and a credit to cash of $58.5 million
d.Debit net assets $39.5 million (various asset & liability accounts) and credit stockholders equity $39.5 million
Explanation / Answer
Answer 26:
Under pooling of interest method all the asset and liabilities are transferred from the acquired company to the acquirer at book values.
Correct answer will be Option D. Debit net assets $39.5 million (various asset & liability accounts) and credit stockholders equity $39.5 million
Answer 27: Image is not Loading. Cant answer this question.
Answer 28:
Similarly to answer no. 26, correct answer will be Option C
"Debit various assets & liabilities for a total $49.5 million & credit stockholders' equity accounts for the same amount"
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