Financial Accounting: Corporate Purchases
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Small Corporation's owners recently offered to sell 60 percent of their ownership to Large Corporation for $450,000. Large's business manager was told that Small's book value was $300,00, and she estimates the fair value of its net assets at approximately $600,000. Small has relatively old equipment and manufacturing facilities and uses a LIFO basis for inventory valuation of some items and FIFO basis for others.
Problem:
If Large accepts the offer and purchases Small, what difficulties are likely to be encountered in assigning the purchase differential?
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Solution Summary
This solution discusses a question about corporate purchases.
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The difficulties lie in the fact that Small uses different basis for valuation of different assets. In ...
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