A nursing home has recently acquired a home health firm for $850,000 in cash. Th

Question

A nursing home has recently acquired a home health firm for $850,000 in cash. The balance sheet of the home health firm looked as follows prior to the acquisition:

Assume that the fair market value of the net fixed assets is $300,000 and the fair market value of the current assets is $200,000. Describe how this acquisition might reflect on the balance sheet of the nursing home.

Current Assets $ 200,000 Net Fixed Assets $ 100,000 Total $ 300,000 Current liabilities $ 100,000 Shareholders' equity $ 200,000 Total $ 300,000

Explanation / Answer

The balance sheet of the nursing home will add the following

+ 300,000 in fixed assets

+ 200,000 in current assets

+100,000 in current liabilities

+( 850000 - 300000 - 200000 + 100000 ) = 450,000 in goodwill

and

+850,000 in shareholders equity

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