On 1/1/03, Park Corp. acquired all of the outstanding common stock of Rose, Inc. by exchanging 600,000 shares of $5 par common stock in a purchase type stock acquisition. Subsequently, Rose was liquidated and its assets and liabilities merged into Park. Park's common stock had a market price of $50 per share at 1/1/03. The amount of goodwill recorded by Park in connection with this combination was $12, 240,000. Park incurred $600,000 in legal fees and other costs as well as $60,000 in stock issuance costs. Compute both the fair value of Rose's net assets and the amount of increase in Park's equity as a result of this combination.
30,000,000 + 600,000 = 30,600,000 Total purchase price
30,600,000 - 12,240,000 = 18,360,000 Fair Value (Park)
3,000,000 + 12,240,000 = 15,240,000 Fair Value (Rose)
29,940,000 increase in equity
Investment in Rose 30,600,000
Common stock 3,000,000
Paid-in capital 26,940,000
Deferred acquisition cost 600,000
Deferred issuance cost 60,000
The solution computes the fair values of the assets in the equity.