Determine the purchase price

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Question - The following balance sheets were reported on January 1, 2016, for Wood Company and Rose Company:

 

Wood

Rose

Cash

$150,000

$30,000

Inventory

450,000

150,000

Equipment (net)

1,320,000

570,000

Total

$1,920,000

$750,000

Total liabilities

$450,000

$150,000

Common stock, $20 par value

600,000

300,000

Other contributed capital

375,000

105,000

Retained earnings

495,000

195,000

Total

$1,920,000

$750,000

Required - Appraisals reveal that the inventory has a fair value $180,000, and the equipment has a current value of $615,000. The book value and fair value of liabilities are the same. Assuming that Wood Company wishes to acquire Rose for cash in an asset acquisition, determine the following cut-off amounts:

A. The purchase price above which Wood would record goodwill.

B. The purchase price at which Wood would record a $50,000 gain.

C. The purchase price below which Wood would obtain a "bargain."

D. The purchase price at which Wood would record $75,000 of goodwill.

Reference no: EM132853678

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