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Financial Accounting: Corporate Purchases

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.

If Large accepts the offer and purchases Small, what difficulties are likely to be encountered in assigning the purchase differential?

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The difficulties lie in the fact that Small uses different basis for valuation of different assets. In ...

Solution Summary

This solution discusses a question about corporate purchases.